UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10‑K10-K
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(Mark One) | |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31 | |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number 001‑32593001-32593
Global Partners LP
(Exact name of registrant as specified in its charter)
Delaware | |
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P.O. Box 9161
800 South Street
Waltham, Massachusetts 02454‑916102454-9161
(Address of principal executive offices, including zip code)
(781) 894‑8800(781) 894-8800
(Registrant’s telephone number, including area code)
Securities registered pursuant to sectionSection 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Units representing limited partner interests | | GLP | | New York Stock Exchange |
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9.75% Series A Fixed-to-Floating Rate Cumulative Redeemable | | GLP pr A | | New York Stock Exchange |
Perpetual Preferred Units representing limited partner interests | | | | |
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9.50% Series B Fixed Rate Cumulative Redeemable | | GLP pr B | | New York Stock Exchange |
Perpetual Preferred Units representing limited partner interests | | | | |
Securities registered pursuant to section 12(g) of the Act:None
None
Indicate by check mark if the registrant is a well‑knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑TS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | | Accelerated filer | ||
Non-accelerated filer ☐ | | Smaller reporting company ☐ | |||
| | | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Act). Yes ☐ No ☒
The aggregate market value of common units held by non‑affiliatesnon-affiliates of the registrant (treating directors and executive officers of the registrant’s general partner and their affiliates, for this purpose, as if they were affiliates of the registrant) as of June 29, 201830, 2021 was approximately $453,833,916$751,766,988 based on a price per common unit of $17.05,$25.92, the price at which the common units were last sold as reported on the New York Stock Exchange on such date.
As of March 5, 2019,February 24, 2022, 33,995,563 common units were outstanding.
DOCUMENTS INCORPORATED BY REFERENCEREFERENCE: None
None
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 60 | |
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| Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | |||
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| Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | | 90 | |
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| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | | 120 | |
| Certain Relationships and Related Transactions, and Director Independence | | 121 | |
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Forward-Looking Statements
Forward‑Looking Statements
Certain statements and information in this Annual Report on Form 10‑K10-K may constitute “forward‑looking“forward-looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward‑lookingforward-looking statements, which are generally not historical in nature. These forward‑lookingforward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward‑lookingforward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward‑lookingforward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Known material factors that could cause our actual results to differ from those in the forward-looking statements are those described in Part I, Item 1A. “Risk Factors.” These risks and uncertainties include, among other things:
| We may not have sufficient cash from operations to enable us to pay distributions on our SeriesA |
| 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. |
● | 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. |
| Our gasoline sales could be significantly reduced by a reduction in demand due to the impact of COVID-19, higher prices and |
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fueling destinations or potentially fewer customer visits to our sites, resulting in a decrease in gasoline sales and/or sales of food, sundries and |
| 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. |
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| 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 within the 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 |
| 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. |
| 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 |
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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. |
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| 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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Readers are cautioned not to place undue reliance on forward‑lookingforward-looking statements, which speak only as of the date hereof.hereof. We undertake no obligation to publicly update or revise any forward‑lookingforward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.
Available Information
We make available free of charge through our website, www.globalp.com, our Annual Reports on Form 10‑K,10-K, Quarterly Reports on Form 10‑Q,10-Q, Current Reports on Form 8‑K8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file or furnish such material with the Securities and Exchange Commission (“SEC”). These documents are also available at the SEC’s website at www.sec.gov. Our website also includes our Code of Business Conduct and Ethics, our Governance Guidelines and the charters of our Audit Committee and Compensation Committee.
A copy of any of these documents will be provided without charge upon written request to the General Counsel, Global Partners LP, P.O. Box 9161, 800 South Street, Suite 500, Waltham, MA 02454; fax (781) 398‑9211.
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PART I
References in this Annual Report on Form 10‑K10-K to “Global Partners LP,” “Partnership,” “we,” “our,” “us” or like terms refer to Global Partners LP and its subsidiaries. References to “our general partner” refer to Global GP LLC.
Items 1. and 2. Business and Properties.
Overview
We are a master limited partnership formed in March 2005. We own, control or have access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the “Northeast”). We are one of the region’s largest independent owners, suppliers and operators of gasoline stations and convenience stores. As of December 31, 2018,2021, we had a portfolio of 1,5791,595 owned, leased and/or supplied gasoline stations, including 297295 directly operated convenience stores, primarily in the Northeast. We are also one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. We engage in the purchasing, selling, gathering, blending, storing and logistics of transporting petroleum and related products, including gasoline and gasoline blendstocks (such as ethanol), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, crude oil and propane and in the transportation of petroleum products and renewable fuels by rail from the mid‑continentmid-continent region of the United States and Canada.
We purchase refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane 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.
Global GP LLC, our general partner, manages our operations and activities and employs our officers and substantially all of our personnel, except for most of our gasoline station and convenience store employees who are employed by our wholly owned subsidiary, Global Montello Group Corp. (“GMG”).
2018 EventsCOVID-19
Series A Preferred Unit OfferingThe COVID-19 pandemic continues to make its presence felt at home, in the 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. Please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Perspective on Global and the COVID-19 Pandemic.”
Recent Developments
Acquisitions—On August 7, 2018, we issued 2,760,000 9.75% SeriesA Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests (the “SeriesA Preferred Units”) for $25.00 per SeriesA Preferred Unit in an offering registered under the Securities Act of 1933. We used the proceeds, net of underwriting discount and expenses, of $66.4million to reduce indebtedness under our credit agreement. See Note 17 of Notes to Consolidated Financial Statements for additional information.
Acquisition from Cheshire Oil Company, LLC—On July 24, 2018,February 1, 2022, we acquired substantially all of the retail motor fuel assets of tenin Virginia and North Carolina from Miller Oil Co., Inc. The acquisition includes 21 company-operated gasoline stations andMiller’s Neighborhood Market convenience stores from New Hampshire-based Cheshire Oil Company,LLC (“Cheshire”) for approximately $33.4 million, including inventory. See Note 19 of Notes to Consolidated Financial Statements for additional information.
Acquisition from Champlain Oil Company, Inc.—On July 17, 2018, we acquired retail fuel and convenience store assets from Vermont-based Champlain Oil Company, Inc. (“Champlain) for approximately $138.4 million, including inventory. The acquisition included 37 company-operated gasoline stations with Jiffy Mart-branded convenience stores in Vermont and New Hampshire and approximately 242 fuel sites that are either owned or leased, including lessee dealer and commissioncommissioned agent locations. The transaction also includedlocations, all located in Virginia, and 34 fuel supply agreements for approximately 65 gasoline stations,only sites, primarily in VermontVirginia.
On January 25, 2022, we acquired substantially all of the assets from Connecticut-based Consumers Petroleum of Connecticut, Incorporated. The acquisition includes 26 company-owned Wheels convenience stores and related fuel operations located in Connecticut (after the disposition of one site pursuant to the terms of the Federal Trade Commission’s consent order) and 22 fuel-supply only sites located in Connecticut and New Hampshire. See Note 19York. The purchase price, subject to post-closing adjustments, was approximately $151.0 million. The acquisition was funded with borrowings under our revolving credit facility.
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Revere Terminal Purchase and Sale Agreement—On November 24, 2021, we entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with Revere MA Owner LLC (the “Revere Buyer”) pursuant to Consolidated Financial Statementswhich the Revere Buyer will acquire our terminal located on Boston Harbor in Revere, Massachusetts (the “Revere Terminal”) for additional information.
Volumetric Ethanol Excise Tax Credit—a purchase price of $150.0 million in cash. Pursuant to the terms of the purchase agreement we entered into with affiliates of the Slifka family (“Initial Seller”) in 2015 to acquire the Revere Terminal, the Initial Seller will receive a portion of the net proceeds that we will receive from the sale of the Revere Terminal. We estimate that proceeds to us from the sale of the Revere Terminal after closing costs and consideration of amounts due to the Initial Seller will be in excess of $100.0 million. In connection with closing under the Purchase Agreement, we will enter into a leaseback agreement with the Revere Buyer pursuant to which we will lease back key infrastructure at the Revere Terminal, including certain tanks, dock access rights, and loading rack infrastructure, to allow us to continue business operations at the Revere Terminal post-closing. The disposition is expected to close in the first quarterhalf of 2018,2022 and is subject to customary closing conditions.
Amended Credit Agreement—On May 5, 2021, we recognizedand certain of our subsidiaries entered into the fifth amendment to third amended and restated credit agreement which, among other things, increased the total aggregate commitment to $1.25 billion and extended the maturity date to May 6, 2024. On November 29, 2021, we and certain of our subsidiaries agreed with the lenders to increase the working capital revolving credit facility in an amount equal to $100.0 million, which increased the total available commitments under the credit agreement to $1.35 billion.
Series B Preferred Unit Offering—On March 24, 2021, we issued 3,000,000 9.50% SeriesB Fixed Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in us (the “SeriesB Preferred Units”) at a one-time income itemprice of approximately $52.6 million as$25.00 per SeriesB Preferred Unit. Distributions on the SeriesB Preferred Units are payable quarterly and are cumulative from and including the date of original issue at a resultfixed rate of 9.50% per annum of the extinguishmentstated liquidation preference of a contingent liability related$25.00. We used the proceeds, net of underwriting discount and expenses, of $72.2million to the Volumetric Ethanol
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Excise Tax Credit, which taxreduce indebtedness under our credit program expired in 2011. Based upon the significant passage of time from that 2011 expiration date, including underlying statutes of limitation, as of January 31, 2018 we determined that the liability was no longer required. The recognition of this one-time income item, which is included in gain (loss) on trustee taxes in the accompanying consolidated statements of operations for the year ended December 31, 2018, did not impact cash flows from operations for the year ended December 31, 2018. agreement.
Operating Segments
We purchase refined petroleum products, gasoline blendstocks, renewable fuels, crude oil and propane 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) GDSO and (iii) Commercial. In 2018,2021, our Wholesale, GDSO and Commercial sales accounted for approximately 55%59%, 35% and 10%6% of our total sales, respectively.
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‑termlong-term contracts. From time to time, we aggregate crude oil by truck or pipeline in the mid‑continentmid-continent region of the United States and Canada, transport it by rail and ship it by barge to refiners. We sell home heating oil, branded and unbranded gasoline and gasoline blendstocks, diesel, kerosene and residual oil and propane to home heating oil and propane 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.
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 stores,store and prepared food sales, (ii) rental income from gasoline stations leased to dealers, from commissioned agents and from cobranding arrangements and
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(iii) sundries (such as car wash sales and lottery and ATM commissions).
As of December 31, 2018,2021, we had a portfolio of owned, leased and/or supplied gasoline stations, primarily in the Northeast, that consisted of the following:
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Company operated |
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Commissioned agents |
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Lessee dealers |
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Contract dealers |
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Total |
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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, and we respond to publicly issued requests for product proposals and quotes.location. Our Commercial segment also includes sales of custom blended fuels delivered by barges or from a terminal dock to ships through bunkering activity.
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Products
Products
General
The following table presents our product sales and other revenues as a percentage of our consolidated sales for the years ended December 31:
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Gasoline sales: gasoline and gasoline blendstocks (such as ethanol) |
| 74 | % | 65 | % | 64 | % |
| 72 | % | 70 | % | 75 | % |
Distillates (home heating oil, diesel and kerosene) and residual oil sales |
| 24 | % | 24 | % | 21 | % | |||||||
Crude oil sales and crude oil logistics revenue |
| 1 | % | 5 | % | 7 | % |
| 1 | % | 1 | % | 1 | % |
Distillates (home heating oil, diesel and kerosene), residual oil, natural gas and propane sales |
| 22 | % | 26 | % | 24 | % | |||||||
Convenience store sales, rental income and sundries |
| 3 | % | 4 | % | 5 | % | |||||||
Convenience store and prepared food sales, rental income and sundries | | 3 | % | 5 | % | 3 | % | |||||||
Total |
| 100 | % | 100 | % | 100 | % |
| 100 | % | 100 | % | 100 | % |
Gasoline. We sell substantially all grades of branded and unbranded gasoline and we sell gasoline blendstocks, such as ethanol, that comply with seasonal and geographical requirements in the areas in which we market.
Crude Oil. We engage in the purchasing, selling, storing and logistics of transporting domestic and Canadian crude oil and other products via rail and barge from the mid‑continent region of the United States and Canada for distribution to refiners and other customers.
Distillates. Distillates are primarily divided into home heating oil, diesel and kerosene. In 2018,2021, sales of home heating oil, diesel and kerosene accounted for approximately 48%42%, 51%56% and 1%2%, respectively, of our total volume of distillates sold. The distillates we sell are used primarily for fuel for trucks and off‑roadoff-road construction equipment and for space heating of residential and commercial buildings.
We sell generic home heating oil and Heating Oil Plus™, our proprietary premium branded heating oil that is electronically blended at the delivery facility, to wholesale distributors and retailers. In addition, we sell the additive used to create Heating Oil Plus™ to some wholesale distributors, make injection systems available to them and provide technical support to assist them with blending. We also educate the sales force of our customers to better prepare them for marketing our products to their customers.
We have a fixed price sales program that we market primarily to wholesale distributors and retailers which uses the New York Mercantile Exchange (“NYMEX”) heating oil contract as the pricing benchmark and as the vehicle to manage the commodity risk. Please read “—Commodity Risk Management.” In 2018,2021, approximately 28% of our home heating oil volume was sold using forward fixed price contracts. A forward fixed price contract requires our customer to
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purchase a specific volume at a specific price during a specific period. The remaining home heating oil volume was sold on either a posted price or a price based on various indices which, in both instances, reflect current market conditions.
We sell generic diesel and Diesel One®, our proprietary premium diesel fuel product. We offer marketing and technical support for those customers who purchase Diesel One®.
Residual Oil. We sell residual oil to industrial, commercial and marine customers. We specially blend product for users in accordance with their individual power specifications and for marine transport.
Propane.Crude Oil. We sell propane to home heatingengage in the purchasing, selling, storing and logistics of transporting domestic and Canadian crude oil and propane retailersother products via pipeline, rail and wholesale distributors primarilybarge from our rail‑fed propane storagethe mid-continent region of the United States and Canada for distribution facility near our Church Street terminal in Albany, New York.to refiners and other customers.
Natural Gas. Prior to the sale of our natural gas marketing and electricity brokerage businesses in February 2017, we sold natural gas to industrial and commercial customers.
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Convenience Store Items and Sundries. We sell a broad selection of food, beverages, snacks, grocery and non‑foodnon-food merchandise at our convenience store locations and generate sundry sales, such as car wash sales and lottery and ATM commissions, at our convenience store locations.
Significant Customers
None of our customers accounted for greater than 10% of total sales for years ended December 31, 2018, 20172021, 2020 and 2016.2019.
Assets
Terminals
As of December 31, 2018,2021, we owned, leased or maintained dedicated storage facilities at 2526 bulk terminals, each with the capacity of more than 50,000 barrels, with a collective storage capacity of 11.6 approximately 11.9 million barrels. Twenty‑twoTwenty-three of these bulk terminals are located throughout the Northeast. Some of our storage tankage is versatile, allowing us to switch tankage from one product to another.
In addition to refined products, we also own or operate two rail facilities in New York, Vermont and Oregon capable of handling crude oilethanol, renewable diesel (only in Oregon) and ethanolother products and two rail facilities in North Dakota capable of handlingthat are permitted to receive, store or distribute crude oil. At select locations, we have capacity to store renewable fuels, and in Albany, New York, we also have an additional rail‑fed propanerail-fed storage terminal.terminal capable of handling propane.
The bulk terminals and inland storage facilities from which we distribute product are supplied by ship, barge, truck, pipeline and/or rail. The inland storage facilities, which we use primarily to store distillates, are supplied with product delivered by truck and/or pipeline from bulk terminals. Our customers receive product from our network of bulk terminals and inland storage facilities primarily via truck, ship, barge, railpipeline and/or pipeline.rail.
In connection with our businesses, we may lease or otherwise secure the right to use certain third-party assets (such as railcars, pipelines and barges). As of December 31, 2018,2021, we supported our rail activity with a fleet of approximately 700120 leased railcars. The makeup of this fleet is split between general‑purposegeneral-purpose cars typically used for light crude oil, ethanol and refined products, and coiled, insulated cars, typically used for heavy crude oil and residual oil.pressurized tank cars. We lease railcars from third parties through various lease arrangements with various expiration dates, and we also lease barges from third parties through various time charter lease arrangements also with various expiration dates. We also have various pipeline connection agreements that extend for threeone to sixfour years. See Note 10 of Notes to Consolidated Financial Statements for additional information on our railcar leases, barge leases and pipeline commitments.
Many of our bulk terminals operate 24 hours a day and consist of multiple storage tanks and automated truck loading equipment. These automated systems monitor terminal access, volumetric allocations, credit control and carrier certification through the remote identification of customers. In addition, some of the bulk terminals from which we market are equipped with truck loading racks capable of providing automated blending and additive packages which meet our customers’ specific requirements.
Throughput10
We use throughput arrangements allowfor storage of product at terminals owned by others. We or our customers can load product at these terminals, and we pay the owners of these terminals fees for services rendered in connection with the receipt, storage and handling of such product. Compensation to the terminal owners may be fixed or based upon the volume of our product that is delivered and sold at the terminal. LogisticsOur throughput agreements may require counterpartiesus to throughput a minimum volume over an agreed-upon period and may include make-up rights if the minimum volume is not met.
We have exchange agreements with customers and suppliers. An exchange is a contractual agreement where the parties exchange product at their respective terminals or facilities. For example, we (or our customers) receive product that is owned by our exchange partner from such party’s facility or terminal, and we deliver the same volume of our product to such party (or to such party’s customers) out of one of the terminals in our terminal network. Generally, both
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sides of an exchange transaction pay a handling fee (similar to a throughput fee), and often one party also pays a location differential that covers any excess transportation costs incurred by the other party in supplying product to the location at which the first party receives product. Other differentials that may occur in exchanges (and result in additional payments) include product value differentials and timing differentials.
Gasoline Stations
As of December 31, 2018,2021, we had a portfolio of 1,5791,595 owned, leased and/or supplied gasoline stations, including 297295 directly operated convenience stores, primarily in the Northeast.
At our company‑operatedcompany-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 andand/or other businesses that may be conducted by the commissioned agent. At dealer‑leaseddealer-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‑leaseddealer-leased gasoline stations and (ii) cobranding arrangements. We also supply gasoline to locations owned and/or leased by independent contract dealers. Additionally, we have contractual relationships with distributors in certain New England states pursuant to which we source and supply these distributors’ gasoline stations with ExxonMobil‑brandedExxonMobil-branded gasoline.
Supply
Our products come from some of the major energy companies in the world as well as North American crude oil producers. Products can be sourced from the United States, Canada, South America, Europe, Russia and occasionally from Asia. Most of our products are delivered by water, pipeline, rail or truck. During 2018,2021, we purchased an average of approximately 382,000364,000 barrels per day of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane.oil. We enter into supply agreements with these suppliers on a term basis or a spot basis. With respect to trade terms, our supply purchases vary depending on the particular contract from prompt payment (usually two days) to net 30 days. Please read “—Commodity Risk Management.” We obtain our convenience store inventory from traditional suppliers.
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.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.
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Commodity Risk Management
When we take title to the products that we sell, we are exposed to commodity risk. Commodity risk is the risk of unfavorable market fluctuations in the price of commodities such as refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane.oil. We endeavor to minimize commodity risk in connection with our daily operations through hedging by selling exchange‑tradedthe use of exchange-traded futures contracts on regulated exchanges or using other over‑the‑counterover-the-counter derivatives, and then lift hedges as we sell the product for physical delivery to third parties. Products are generally purchased and sold at spot market prices, fixed prices or indexed prices, with certain adjustments based on quality and freight due to location differences and prevailing supply and demand conditions, as well as other factors. While we use these transactions to seek to maintain a position that is substantially balanced within our commodity product purchase and sales activities, we may experience net unbalanced positions for short periods of time as a result of
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variances in daily purchases and sales and transportation and delivery schedules as well as other logistical issues inherent in our businesses, such as weather conditions. In connection with managing these positions, we are aided by maintaining a constant presence in the marketplace. We also engage in a controlled trading program for up to an aggregate of 250,000 barrels of commodity products at any one point in time. Our policy is generally to purchase only products for which we have a market and to structure our sales contracts so that price fluctuations do not materially affect our profit. While our policies are designed to minimize market risk, as well as inherent basis risk, exposure to fluctuations in market conditions remains.
In addition, because a portion of our crude oil business may be conducted in Canadian dollars, we may use foreign currency derivatives to minimize the risks of unfavorable exchange rates. These instruments may include foreign currency exchange contracts and forwards. In conjunction with entering into the commodity derivative, we may enter into a foreign currency derivative to hedge the resulting foreign currency risk. These foreign currency derivatives are generally short‑termshort-term in nature and not designated for hedge accounting.
Operating results are sensitive to a number of factors. Such factors include commodity location, grades of product, individual customer demand for grades or location of product, localized market price structures, availability of transportation facilities, daily delivery volumes that vary from expected quantities and timing and costs to deliver the commodity to the customer. Basis risk is the inherent market price risk created when a commodity of a certain grade or location is purchased, sold or exchanged as compared to a purchase, sale or exchange of a commodity at a different time or place, including transportation costs and timing differentials. We attempt to reduce our exposure to basis risk by grouping our purchase and sale activities by geographical region and commodity quality in order to stay balanced within such designated region. However, basis risk cannot be entirely eliminated, and basis exposure, particularly in backward markets (when prices for future deliveries are lower than current prices) or other adverse market conditions, can adversely affect our financial condition, results of operations and cash available for distribution to our unitholders.
With respect to the pricing of commodities, we utilize exchange-traded futures contracts and other derivative instruments to minimize or hedge the impact of commodity price changes on our inventories and forward fixed price commitments. Any hedge ineffectiveness is reflected in our results of operations. We utilize regulated exchanges, including the NYMEX, the Chicago Mercantile Exchange (“CME”) and the Intercontinental‑ExchangeIntercontinental-Exchange (“ICE”), which are exchanges for the respective commodities that each trades, thereby reducing potential delivery and supply risks. Generally, our practice is to close all exchange positions rather than to make or receive physical deliveries. With respect to other products such as ethanol, which may not have a correlated exchange contract, we enter into derivative agreements with counterparties that we believe have a strong credit profile, in order to hedge market fluctuations and/or lock‑in margins relative to our commitments.
We monitor processes and procedures to prevent unauthorized trading by our personnel and to maintain substantial balance between purchases and sales or future delivery obligations. We can provide no assurance, however, that these steps will eliminate commodity risk or detect and prevent all violations of such trading processes and procedures, particularly if deception or other intentional misconduct is involved.
In our Wholesale segment, we obtain Renewable Identification Numbers (“RINs”) in connection with our purchase of ethanol which is used for our bulk supply requirementstrading purposes or for blending with gasoline through our terminal system. A RIN is a renewable identification number associated with government‑mandatedgovernment-mandated renewable fuel standards. To evidence that the required volume of renewable fuel is blended with gasoline, and diesel motor vehicle fuels, 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
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certain facilities. As a wholesaler of transportation fuels through our terminals, we separate RINs from renewable fuel through blending with gasoline and can use those separated RINs to settle our RVO. While the annual compliance period for the RVO is a calendar year and the settlement of the RVO typically occurs by March 31 of the following year, the settlement of the RVO can occur, under certain EPA deferral actions, more than one year after the close of the compliance period. Our Wholesale segment operating results may be sensitive to the timing associated with our RIN position relative to our RVO at a point in time, and we may recognize a mark‑to‑marketmark-to-market liability for a shortfall in RINs at the end of each reporting period. To the extent that we do not have a sufficient number of RINs to satisfy our RVO as of the balance sheet date, we charge cost of sales for such deficiency
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based on the market price of the RINs as of the balance sheet date and record a liability representing our obligation to purchase RINs. Our 2016 RIN obligation may change due to a court decision requiring the EPA to revise the calculation methodology for determining the 2016 renewable fuel obligation. WeIn 2019, the EPA proposed a rule that would retain the 2016 obligation, though the agency continues to assess how to proceed. A coalition of agriculture and biofuels groups have filed suit, seeking a court order to force EPA to revise its calculation of the 2016 obligations. However, we do not believe that any impacts associated with any such change will have a material adverse effect on our financial position, results of operations or cash available for distribution to our unitholders.
For more information about our policies and procedures to minimize our exposure to market risk, including commodity market risk, please read Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”
Competition
In each of our operating segments, we encounter varying degrees of competition based on product and geographic locations and available logistics. Our competitors include terminal companies, major integrated oil companies and their marketing affiliates, wholesalers, producers and independent marketers of varying sizes, financial resources and experience. In our Northeast market,markets, we compete in various product lines and for all customers. In the residual oil markets, however, where product is heated when stored and cannot be delivered long distances, we face less competition because of the strategic locations of our residual oil storage facilities. We supply oil to industrial, commercial and marine customers. We compete with other transloaders in our logistics activities including, in part, storage and transportation of crude oil, renewable fuels, gasoline and gasoline blendstocks, crude oil and the movement of product by alternative means (e.g., pipelines). We also compete with natural gas suppliers and marketers in our home heating oil and residual oil and propane product lines. Bunkering requires facilities at ports to service vessels. In various other geographic markets, particularly with respect to unbranded gasoline and distillates markets, we compete with integrated refiners, merchant refiners and regional marketing companies. Our retail gasoline stations compete with unbranded and branded retail gasoline stations as well as supermarket and warehouse stores that sell gasoline, and our convenience stores compete with other convenience store chains, independent convenience stores, supermarkets, drugstores, discount warehouse clubs, motor fuel stations, mass merchants, fast food operationsquick service restaurants and other similar retail outlets.
Employees and Human Capital
To carry out our operations, our general partner and certain of our operating subsidiaries employed a total of approximately 2,500 full‑time3,490 employees, including approximately 2,430 full-time employees as of December 31, 2018,2021, of which approximately 100105 employees were represented by labor unions under collective bargaining agreements with various expiration dates. We may not be able to renegotiate the collective bargaining agreements when they expire on satisfactory terms or at all. A failure to do so may increase our costs. In addition, existing labor agreements may not prevent a future strike or work stoppage, and any work stoppage could negatively affect our results of operations and financial condition. We believe we have good relations with our employees.
Our values and culture are key to our ability to attract, hire and retain skilled and talented employees for our businesses. Those values, that culture and our employees are critical to our success as we build and sustain our company. We offer competitive compensation and benefit programs to motivate and reward performance.
We also value diversity throughout or organization and continuously look to extend our diversity, equity and inclusion initiatives across the workforce. We believe our employees embody our core values of integrity, quality, commitment and innovation and, in doing so, contribute to our long-standing character and reputation.
To continue to attract and retain the best people, we have adjusted hiring rates for hourly paid and salaried management to remain competitive. In our retail locations, we have introduced a shared services agreement with GPC. The services provided by employees shared pursuantfaster application and onboarding
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process, including text to this agreement do not limitapply, and a referral bonus scheme for existing employees. In our corporate offices, we have introduced a new flexible working policy for everyone and the ability to work completely remotely for approved employees. We also continue to invest in the training and development of suchour people to enhance operational standards and increase employee engagement.
We maintain an environment of open communications where the contributions of all employees are valued. We encourage many forms of company-wide communications, including town hall meetings. Our culture is founded upon core principles of respect, fair treatment and providing equal opportunities for our workforce.
Safeguarding the health and safety of our employees is our first and foremost priority. We are committed to provideproviding a safe working environment for all services necessaryour employees and operating in a safe and environmentally sound manner. We support our local communities and we are working to properly runobtain sustainability throughout the company. In response to the COVID-19 pandemic, we have remained focused on safeguarding the health of our businesses. Please read Part III, Item 13, “Certain Relationshipsemployees by implementing safety protocols and Related Transactions,procedures across all our offices and Director Independence—Shared Services Agreement.”facilities. We continuously monitor the impact of the COVID-19 pandemic on our employees and proactively modify and adopt new measures and practices for the health and safety of our employees and in response to applicable laws.
We operate in an evolving regulatory environment and our operations are subject to numerous and varying regulatory requirements. We proactively manage compliance and work collaboratively with stakeholder groups, including government agencies and committees in this endeavor.
Title to Properties, Permits and Licenses
We believe we have all of the assets needed, including leases, permits and licenses, to operate our businesses in all material respects. With respect to any consents, permits or authorizations that have not been obtained, we believe that the failure to obtain these consents, permits or authorizations will have no material adverse effect on our financial position, results of operations or cash available for distribution to our unitholders.
We believe we have satisfactory title to all of our assets. Title to property, including certain sites within our GDSO segment, may be subject to encumbrances, including repurchase rights and use, operating and environmental covenants and restrictions. We believe that none of these encumbrances will materially detract from the value of our properties or from our interest in these properties, nor will they materially interfere with the use of these properties in the operation of our businesses.
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The name GLOBAL®, our Global logos and the name Global Petroleum Corp.® are our trademarks. In addition, we have trademarks for our premium fuels and additives: Diesel One® and the Diesel One® logo, Heating Oil Plus™ and the Heating Oil Plus® logo, SubZero® and the SubZero® logo, Diesel One®and our pending trademarksthe Diesel 1™One® logo, Diesel 1®, the Diesel 1™ logo and the tagline Legacy.Technology.Performance.™®. Our Global online customer portal for buying, bidding and contract management is operated under the name GlobalCONNECT™.
We also own registrations and use the following trademarks, among others, for our convenience store business: ALLTOWNAlltown®, ALLTOWN ADVANTAGE™Alltown Fresh & logo®, ALLTOWN FRESH™ and the ALLTOWN FRESH™ logos, YOUR TOWN.MYTOWN.ALLTOWN!Centre St. Kitchen®, ALLTOWN MARKET®, CENTRE ST. KITCHEN®, Buck Stop®, Fast Freddie’s®, Mr. Mike’s®, Deli Joe’s®, Diamond Fuels®, Xtra Mart & logo®, HF Honey Farms & logo®, Wheels & logo®. We also own the trademark Jiffy Mart & logo SM. We also have rights to use O’Connell’s Convenience PlusSM, T-BirdSM, Miller Mart® and the Deli Joe’s® logo, Diamond Fuels®, Xtra® and the XtraCafé® logo, Xtra Mart® and the Xtramart® logo, the Honey Farms® logo, Honey Money® and the Honey Money® logo.related marks.
Facilities
We lease office space for our principal executive office in Waltham, Massachusetts. This lease expires on July 31, 2026 with extension options through July 31, 2036. In addition, we lease office space in Branford, Connecticut. This lease expires on July 31, 2024 with extension options through July 31, 2034.
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Regulation
General
Our businesses of supplying primarily refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane involve a number of activities that are subject to extensive and stringent environmental laws. In addition, these laws are frequently modified or revised to impose new obligations.
Our operations also use a number of petroleum and other products storage and distribution facilities. These facilities includinginclude rail transloading facilities and gasoline stations that we do not own or operate, but at which refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane are stored. We use these facilities through several different contractual arrangements, including leases and throughput and terminalling services agreements. If facilities with which we contract that are owned and operated by third parties fail to comply with environmental laws, they could be shut down or their operations could be compromised, requiring us to incur costs to use alternative facilities.
State, federal, and municipal laws and regulations, including, without limitation, those governing environmental matters can restrict or impact our business activities in many ways, such as:
| requiring remedial action to mitigate releases of hydrocarbons, hazardous substances or wastes caused by our operations or attributable to former operators; |
| requiring our operations to obtain, maintain and renew permits which can obligate us to incur capital expenditures to comply with environmental control requirements and which may restrict our operations; |
| enjoining the operations of facilities found to be noncompliant with applicable laws and regulations; |
| inability to renew, modify or obtain permits on |
● | limiting or restricting the products we may sell at our company-operated convenience stores. |
Any such failures to comply may also trigger administrative, civil and possibly criminal enforcement measures, including monetary penalties and remedial requirements. Certain statutes impose strict, joint and several liability for costs required to clean up and restore sites where hydrocarbons, hazardous substances or wastes have been released or disposed of. Moreover, neighboring landowners and other third parties may file claims for personal injury and property damage allegedly caused by the release of hydrocarbons, hazardous substances or other wastes into the environment.
Our operating permits are subject to modification, renewal and revocation. We regularly monitor and review our operations, procedures and policies for compliance with permits, laws and regulations. Risk of noncompliance,
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permit interpretation, permit modification, renewal of permits on less favorable terms, judicial or administrative challenges of permits or permit revocation are inherent in the operation of our businesses, as it is with other companies engaged in similar businesses.
The trend in environmental regulation has been to place more restrictions and limitations on activities that may affect the environment over time. As a result, there can be no assurance as to the amount or timing of future expenditures for environmental compliance or remediation, and actual future expenditures may be different from the amounts we currently anticipate. 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 minimize the costs of such compliance.
We do not believe that compliance with federal, state or localmunicipal laws, including environmental laws and regulations will have a material adverse effect on our financial position, results of operations or cash available for distribution to our unitholders. We can provide no assurance, however, that future events, such as changes in existing laws (including changes in the interpretation of existing laws), the promulgation of new laws, or the development or
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discovery of new facts or conditions will not cause us to incur significant costs or will not have a material adverse effect on our financial position, results of operations or cash available for distribution to our unitholders.
For additional information concerning certain environmental proceedings, please read Notes 1314 and 2223 of Notes to Consolidated Financial Statements.
Hazardous MaterialSubstance Releases and Waste Handling
Our businesses are subject to laws that relate to the release of hazardous substances into the water, air or soils and require, among other things, measures to control pollution of the environment. For instance, the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, also known as CERCLA or the Superfund law, and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons who are considered to be responsible for the release of hazardous substances into the environment. Under the Superfund law, these persons may be subject to joint and several liability for the costs of cleaning up hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In the course of our ordinary operations, we may generate, store or otherwise handle materials and wastes that fall within the Superfund law’s definition of a hazardous substance and, as a result, we may be jointly and severally liable under the Superfund law for all or part of the costs required to clean up sites at which those hazardous substances have been released into the environment. Under these laws, we could be required to remove or remediate previously disposed wastes, including wastes disposed of or released by prior owners or operators, clean up contaminated property, including groundwater contaminated by prior owners or operators, or make capital improvements to prevent future contamination.
Our operations generate a variety of wastes, including some hazardous wastes that are subject to the federal Resource Conservation and Recovery Act, as amended (“RCRA”) and comparable state laws. These regulations impose detailed requirements for the handling, storage, treatment and disposal of hazardous waste. Our operations also generate solid wastes which are regulated under state law or the less stringent solid waste requirements of the federal Solid Waste Disposal Act. We believe that our operations are in substantial compliance with the existing requirements of RCRA, the Solid Waste Disposal Act and similar state and localmunicipal laws, and the cost involved in complying with these requirements is not material. We also incur ongoing costs for monitoring groundwater and/or remediation of contamination at several facilities that we operate.
We believe we are in substantial compliance with applicable hazardous substance releases and waste handling requirements related to our operations. We do not believe that compliance with federal, state or municipal hazardous substance releases and waste handling regulations will have a material adverse effect on our financial position, results of operations or cash available for distribution to our unitholders. However, these and future statutes, regulatory changes or initiatives regarding hazardous substance releases and waste handling could directly and indirectly increase our operating and compliance costs. For example, the EPA is expected to designate certain widely used chemicals that break down slowly over time (per- and poly-fluoroalkyl substances, also known as “PFAS”) as hazardous substances under CERCLA. Should any PFAS contamination be detected at sites that we currently own or operate, or formerly owned or operated, we may be obligated to remediate any such materials. We cannot assure that costs incurred to comply with standards and regulations emerging from these and future rulemakings will not be material to our businesses, financial condition or results of operations.
Above Ground Storage Tanks
Above ground tanks that contain petroleum and other hazardous substances are subject to comprehensive regulation under environmental and other laws. Generally, these laws require secondary containment systems for tanks or that the operators take alternative precautions to ensure that no contamination results from tank leaks or spills and impose liability for releases from the tanks. We believe we are in substantial compliance with environmental laws and regulations applicable to above ground storage tanks.
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Under the Oil Pollution Act of 1990 (“OPA”) and comparable state laws, responsible parties for a regulated facility from which oil products so regulated are dischargedspilled may be subject to strict, joint and several liability for removal costs and certain
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other consequences of an oilany spill such as natural resource damages, where the spill is into navigable waters, groundwater or along shorelines.shorelines and other resource areas, and damages to private properties.
Under the authority of the federal Clean Water Act, the EPA imposes specific requirements for Spill Prevention, Control and Countermeasure plansPlans and Facility Response Plans that are designed to prevent, and minimize the impacts of, releases of oil and other products from above ground storage tanks. We believe we are in substantial compliance with regulations pursuant to OPA, the Clean Water Act and similar state laws. We follow the American Petroleum Institute’s inspection, maintenance and repair standard applicable to our above ground storage tanks.
Underground Storage Tanks
We are required to make financial expenditures to comply with regulations governing underground storage tanks (“USTs”) which store gasoline or other regulated substances adopted by federal, state and localmunicipal regulatory agencies. Pursuant to RCRA, the EPA has established a comprehensive regulatory program for the detection, prevention, investigation and cleanup of leaking USTs. State or local agencies may be delegated the responsibility for implementing the federal program or developing and implementing equivalent or stricter state or local regulations. We have a comprehensive program in place for performing routine tank testing and other compliance activities which are intended to promptly detect and investigate any potential releases. We believe we are in substantial compliance with applicable environmental requirements, including those applicable to our USTs. Compliance with existing and future environmental laws regulating UST systems of the kind we use may require significant capital expenditures in the future. These expenditures may include upgrades, modifications, and the replacement of USTs and related piping to comply with current and future regulatory requirements designed to ensure the detection, prevention, investigation and remediation of leaks and spills.
Water Discharges
The federal Clean Water Act imposes restrictions regarding the discharge of pollutants, including oil and refined petroleum products, gasoline blendstocks, renewable fuels and crude oil, into navigable waters.waters of the United States. This law and comparable state laws may require permits for discharging pollutants into state and federal waters, including certain underground sources, and impose substantial liabilities and remedial obligations for noncompliance. We hold these discharge permits for our facilities. Certain watersfacilities, as applicable. These state and wetlands, known asfederal laws are subject to uncertainty due to ongoing proposed regulatory revisions, ongoing litigation and the recent change in federal administration. This uncertainty extends to, among other regulatory provisions, the definition of waters of the United States, are also subject to the protections and requirements of the Clean Water Act. Considerable legal uncertainty currently exists surrounding what standard should be used to identify waters of the United States as a result of legal challenges to a rulemaking by the former administration and proposed rulemaking by the current administration that is also likelywhich continues to be the subject to legal challenges. This uncertaintyof regulatory redefinitions (as well as ongoing litigation), potential changes in regulated pollutants and applicable standards and the outcomeregulation of these legal challengesdischarges to groundwater, all of which could expand jurisdiction or restrict discharges due to revised standards. This regulatory uncertainty may result in a need for suchadditional or amended permits in areas that were not formerly subject to the Clean Water Act, which may delay, limit or increaseimpact operations in the costs of the exploration and production of crude oil and other materials we transport and may also adversely affect shippers who use our transportation assets. Any resulting restriction of supply could adversely affect our financial position, results of operations or cash available for distribution to our unitholders.future.
EPA regulations also may require us to obtain permits to discharge certain storm water runoff. Storm water discharge permits also may be required by certain states in which we operate. We believe that we hold the required permits and operate in material compliance with those permits. While we have experienced periodic permit discharge exceedences at some of our terminals, we do not expect any noncompliance with existing permits and foreseeable new permit requirements to have a material adverse effect on our financial position, results of operations or cash available for distribution to our unitholders.
Air Emissions
Under the federal Clean Air Act (the “CAA”) and comparable state and local laws, permits are typically required to emit regulated air pollutants into the atmosphere above certain thresholds. We believe that we currently hold or have applied for all necessary air permits and that we are in substantial compliance with applicable air laws and regulations. Although we can give no assurances, we are aware of no changes to air quality regulations that will have a
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material adverse effect on our financial condition, results of operations or cash available for distribution to our unitholders.
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Various federal, state and localmunicipal agencies have the authority to prescribe product quality specifications for the petroleum products and renewable fuels that we sell, largely in an effort to reduce air pollution. Failure to comply with these regulations can result in substantial penalties. Although we can give no assurances, we believe we are currently in substantial compliance with these regulations.
Changes in product quality specifications could require us to incur additional handling costs or reduce our throughput volume. For instance, different product specifications for different markets, such as sulfur content for transportation fuels and home heating fuels, could require the construction of additional storage. Also, many states where we sell heating oil, including New York, Massachusetts, Connecticut, Maine, and Vermont, have limited the sulfur content of home heating oil.
In addition, the CAA and similar state laws impose requirements on emissions to the air from motor fueling activities in certain areas of the country, including those that do not meet state or national ambient air quality standards. These laws may require the installation of vapor recovery systems to control emissions of volatile organic compounds to the air during the motor fueling process.
In November 2015,December 2020, the EPA also revisedunder President Trump maintained the existingNovember 2015 National Ambient Air Quality Standards (“NAAQS”) for ground‑level ozone, which made the standard more stringent. Nitrogen oxides and volatile organic compounds are recognized as pre‑cursors of ozone, and emissions of those materials are associated with mobile sources and the petroleum industry.ground-level ozone. A designation of nonattainment can lead the governing state to issue more stringent limits on existing sources of those precursor pollutants within the designated nonattainment area. Also, a nonattainment designationThe Biden administration, however, may increasestrengthen the burdens on permitting new activities in those areas. The EPA completed area designationsNAAQS for ozone as it has indicated it may review the December 2020 determination to maintain the November 2015 ozone standards in July 2018. States with areas designated nonattainment have at least two years fromNAAQS. Until such review occurs, the effective datefull extent of the nonattainment designation to submitimpacts of any required State Implementation Plan revisions. While wenew standards are not able to determine the extent to which this new standard, or the finalized nonattainment designations, will impact our businesses at this time, it doesclear. However, any revisions have the potential to change the nonattainment designations and could have a material impact on our operations and cost‑structure. cost-structure, which would be determined on an individual permit by permit basis.
Climate Change
FederalThe threat of climate change legislationcontinues to attract considerable attention in the United States appears unlikelyand in foreign countries. In the near‑term. AsUnited States, no comprehensive climate change legislation has been implemented at the federal level; however, President Biden has indicated that addressing climate change will be a result, domesticfocus of his administration, and several states have implemented their own efforts to curb greenhouse gas (“GHG”) emissions continue be led by the EPA GHG regulations and the efforts of states.emissions. To the extent that our operations are subject to the EPA’srestrictions on GHG regulations,emissions, we may face increased capital and operating costs associated with new or expanded facilities. Significant expansions of our existing facilities or construction of new facilities may be subject to the CAA’s requirements for review of pollutants regulated under the Prevention of Significant Deterioration and Title V programs. Some of our facilities and operations are also subject to the EPA’s Mandatory Reporting of Greenhouse Gases rule, and any further regulation may increase our operational costs. Some states in which we do business, including New York, have enacted measures requiring regulatory agencies to consider potential sea level rise in the performance of their regulatory duties.
In May 2016, theThe EPA has proposed or finalized New Source Performance Standards (“NSPS”) for a number of emissions categories, including methane and volatile organic compound emissions from certain activities in the oil and gas production sector, not including crude oilsector. Although the Trump administration reduced certain of these requirements, President Biden has issued an executive order calling for the development of new or refined product transportation. This rule is currently subject to a pending judicial challengemore stringent emissions standards and the EPA issued proposed regulations in the D.C. Circuit. The EPA also releasedNovember 2021 for new, control guidance for reducing volatile organic compound emissions frommodified, and existing sources in the oil and gas sources in certain ozone non‑attainment areas. However, the EPA announced in April 2017 that it intends to reconsider certain aspects of the 2016 NSPS, and in June 2017, the EPA issued an administrative stay of key provisions of the rule, but was promptly ordered by the D.C. Circuit to implement the rule. The EPA also proposed 60-day and two-year stays of certain provisions in June 2017 and published a Notice of Data Availability in November 2017 seeking comment and providing clarification regarding the agency’s legal authority to stay the rule. In March 2018, the EPA announced amendments to two narrow provisions of the 2016 NSPS and in October 2018, the EPA proposed broader amendments to the 2016 NSPSsector, including those related to fugitive emissions requirementsinvolved in transportation and alternative means of emissions limitations provisions. If the proposed rule is finalized, it will likely be subject to judicial challenge. Collectively, thesestorage. These rules, if enacted, could impose new compliance costs and additional permitting burdens on upstream oil and gas operations, which could in turn
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affect the companies that produce the crude oilproducts that we transport. Currently, however, it is not possible to estimate the likely financial impact of potential future regulation on our operations.
Under Subpart MM of the Mandatory Greenhouse Gas Reporting Rule (“MRR”), importers and exporters of petroleum products, including distillates and natural gas liquids, must report the GHG emissions that would result from the complete combustion of all imported and exported products if such combustion would result in the emission of at least 25,000 metric tons of carbon dioxide equivalent per year. We currently report under Subpart MM because of the volume of petroleum products we typically import. Compliance with the MRR does not substantially impact our operations. However, any change in regulations based on GHG emissions reported in compliance with MRR may limit our ability to import petroleum products or increase our costs to import such products.
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The EPA has also issued Corporate Average Fuel Economy (“CAFE”) standards to regulate emissions of GHGs from the use of fossil fuels for mobile sources. Generally, the CAFE standards have incremental annual increases; however, in recent years, significant regulatory changes and related litigation have cast uncertainty on the pace of state and federal efforts to further accelerate fuel economy objectives, which are tied to regulatory strategies to reduce vehicle emissions. In August 2021, the National Highway Traffic Safety Administration (“NHTSA”) proposed new CAFE standards for light duty vehicles manufactured in models years 2024 through 2026, so that standards would increase in stringency at a rate of 8% per year rather than the previous incremental change of 1.5% per year. Additionally, in December 2021, the EPA and the NHTSA withdrew the Safer Affordable Fuel-Efficient Vehicles Rule Part I (“SAFE I Rule”), which would have preempted state authority and prevented states like California from setting their own fuel economy standards. Accordingly, various state and regional programs have been proposed which would curtail or prevent the sale of new gasoline-powered personal vehicles in their jurisdictions within identified time periods. Such programs to achieve reductions in emissions of GHGs from the operation of motor vehicles may be required, which may reduce demand for our products and services.
Overall, there has been a trend towards increased regulation of GHGs and initiatives, both domestically and internationally, to limit GHG emissions. Future efforts to limit emissions associated with transportation fuels and heating fuels could reduce the market for, or effect pricing of, our products, and thus adversely impact our businesses. For example, at the 2015 United Nations Framework Convention on Climate Change in Paris, the United States and nearly 200 other nations entered into an international climate agreement. Although this agreement does not create any binding obligations for nations to limit their GHG emissions, it does include pledges to voluntarily limit or reduce future emissions. TheAlthough the United States had withdrawn from the Paris Agreement, became effectivePresident Biden has signed an executive order recommitting the United States to the Paris Agreement. The impacts of this order, and of any legislation or regulation that may be passed to implement the United States’ commitment under the Paris Agreement, are unclear at this time.
In the Northeast and mid-Atlantic, Massachusetts, Connecticut, Washington, D.C. and Rhode Island have entered into a Memorandum of Understanding (“MOU”) to implement the Transportation and Climate Initiative program (“TCI”). The TCI program effectively ended in November 2016. The United States was one of over 100 nations that indicated an intent to comply with the agreement; however, in August 2017, the U.S. State Department officially informed the United Nations of the intent of the U.S. to withdraw2021 after several states, including Massachusetts, Connecticut and Rhode Island, either paused or withdrew from the agreement, with the earliest possible effective date of withdrawal being November 4, 2020. In addition,program.
Separately, it should be noted that somemany scientists have concluded that increasing concentrations of GHG in the earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events. If any of those effects were to occur, they could have an adverse effect on our assets and operations. In addition, various suits have been filed, alleging that certain companies created public nuisances by producing fuels that contributed to climate change, or alleging that such companies have been aware of the adverse impacts of climate change for some time but failed to adequately disclose such impacts to their investors or customers. Any such litigation could have an adverse effect on operations in the future.
There are increasing financial risks associated with our operations. Activists concerned about the potential effects of climate change have, in certain instances, directed their attention at sources of funding for fossil-fuel energy companies.companies whose businesses are related to the use of fossil fuels. Additionally, the Federal Reserve has joined the Network for Greening the Financial System (“NGFS”), a network of financial regulators committed to addressing climate-related risks in the financial system. While the impacts of the Federal Reserve joining the NGFS are uncertain, financial institutions may be required to adopt policies that could have the effect of reducing funding available to the fossil fuel industry. This could make it more difficult to secure funding for projects.funding.
Convenience Store Regulations
Our convenience store operations are subject to extensive governmental laws and regulations that include legal restrictions on the sale of alcohol, tobacco and lottery products, food labelling, safety and health requirements and public accessibility, as well as sanitation, environmental, safety and fire standards. State and local regulatory agencies have the authority to approve, revoke, suspend or deny applications for, and renewals of, permits and licenses. Our operations are also subject to federal and state laws governing matters such as wage rates, overtime, working conditions and citizenship requirements. At the federal level, there are proposals under consideration from time to time to increase minimum wage
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rates and to introduce a system of mandated health insurance, each of which could adversely affect our results of operations.
In June 2009, Congress passed the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”) which gave the Food and Drug Administration (“FDA”)FDA broad authority to regulate tobacco and nicotine products. Under the FSPTCA, the FDA has passedenacted numerous regulations that, among other things, prohibitrestricting the sale of cigarettes or smokeless tobaccosuch products to anyone under the age of 18 years (state laws are permitted to set a higher minimum age); prohibit the sale of single cigarettes or packs with less than 20 cigarettes; and prohibit the sale or distribution of non‑tobacconon-tobacco items such as hats and t‑shirtst-shirts with tobacco brands, names or logos. GovernmentalThese governmental actions, as well as national, state and municipal campaigns to discourage smoking, tax increases, and imposition of regulations such asrestricting 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 impact our retail priceaffect the sale of cigarettes, cigarette unit volume and revenues, merchandise gross profit and overall customer traffic,this product mix which could in turn could have a materialan adverse effect on our results of operations.
Ethanol Market
The market for ethanol is dependent on several economic incentives and regulatory mandates for blending ethanol into gasoline, including the availability of federal tax incentives, ethanol use mandates and oxygenate blending requirements. For instance, the Renewable Fuels Standard (“RFS”) requires that a certain amount of renewable fuels, such as ethanol, be utilized in transportation fuels, including gasoline, in the United States each year. Additionally, the EPA imposes oxygenate blending requirements for reformulated gasoline that are best met with ethanol blending.
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Gasoline marketers may also choose to discretionally blend ethanol into conventional gasoline for economic reasons. A change or waiver of the RFS mandate or the reformulated gasoline oxygenate blending requirements could adversely affect the availability and pricing of ethanol. Any change in the RFS mandate could also result in reduced discretionary blending of ethanol into conventional gasoline. Discretionary blending is when gasoline blenders use ethanol to reduce
In addition, on December 7, 2021, the cost of blended gasoline.EPA proposed biofuel volume requirements through 2022 under the Renewable Fuel Standard Program.
Environmental Insurance
We maintain insurance which may cover, in whole or in part, certain costs relating to environmental matters associated with the releases of the products we store, sell and/or ship. We maintain insurance policies with insurers in amounts and with coverage and deductibles as we believe are reasonable and prudent. These policies may not cover all environmental risks and costs and may not provide sufficient coverage in the event an environmental claim is made against us.
Security Regulation
Since the September 11, 2001 terrorist attacks on the United States, the U.S. government has issued warnings that energy infrastructure assets may be future targets of terrorist organizations. These developments have subjected our operations to increased risks. Increased security measures taken by us as a precaution against possible terrorist attacks have resulted in increased costs to our businesses. Where required by federal or localmunicipal laws, we have prepared security plans for the storage and distribution facilities we operate. Terrorist attacks aimed at our facilities and any global and domestic economic repercussions from terrorist activities could adversely affect our financial condition, results of operations and cash available for distribution to our unitholders. For instance, terrorist activity could lead to increased volatility in prices for home heating oil, gasoline and other products we sell.
Insurance carriers are currently required to offer coverage for terrorist activities as a result of the federal Terrorism Risk Insurance Act of 2002 (“TRIA”). We purchased this coverage with respect to our property and casualty insurance programs, which resulted in additional insurance premiums. Pursuant to the Terrorism Risk Insurance Program Reauthorization Act of 2015,2019, TRIA has been extended through December 31, 2020.2027. We elect to purchase terrorism coverage through a stand-alone insurance program for both liability and property. Although we cannot determine the future availability and cost of
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insurance coverage for terrorist acts, we do not expect the availability and cost of such insurance to have a material adverse effect on our financial condition, results of operations or cash available for distribution to our unitholders.
Hazardous Materials Transportation
Our operations include the preparation and shipment of some hazardous materials by truck, rail, marine vessel andand/or pipeline. We are subject to regulations promulgated under the Hazardous Materials Transportation Act (and subsequent amendments) and administered by the U.S. Department of Transportation (“DOT”) under the Federal Highway Administration, the Federal Railroad Administration, (“FRA”), the United States Coast Guard and the Pipeline and Hazardous Materials Safety Administration (“PHMSA”).
We conduct loading and unloading of primarily refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane to and from cargo transports, including tanker trucks, railcars, marine vessels and pipeline.pipelines. In large part, the cargo transports are owned and operated by third parties. In addition, we lease a fleet of railcars and charter barges associated with the shipment of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil. We conduct ongoing training programs to help ensure that our operations are in compliance with applicable regulations.
The trend in hazardous material transportation is to increase oversight and regulation of these operations. High-profile derailments of freight trains carrying hazardous materials, including the tragic events in July 2013 in Lac Mégantic and other subsequent events, have led federal and state regulators to introduce a number of new requirements regulating the transportation of hazardous materials including crude oil and other products. These regulations addressaddress: the testing and ensuing designations of crude oil; the safety of tank cars that are used in transporting crude oil and other flammable or petroleum type liquids by rail, including a requirement tothe phase out certain olderof DOT-111 tank cars;cars that have not been retro-fitted; braking standards for certain trains; and new operational protocols for trains transporting large volumes of flammable
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liquids, such as routing requirements, speed restrictions and the provision of information to local government agencies. In July 2016, PHMSA also proposed a new rule that would expand the applicability ofagencies; and comprehensive oil spill response plans so thatfor any railroad that transports Class 3 flammable liquid petroleum oil in a single train carrying either a continuous block of 20 or more loaded tank cars of liquid petroleum oil in a continuous block or a single train carrying 35 or more loaded tank cars of liquid petroleum oil throughout the train must have a current, comprehensive, written plan.in total. In January 2017,May 2020, PHMSA issuedwithdrew an Advance Notice of Proposed Rulemaking announcing that it is considering revisingpotential revisions of the Hazardous Materials Regulations to establish vapor pressure limits for the transportation of crude oil and potentially all Class 3 flammable liquid hazardous materials. It remains toThis or other regulations regarding the movement of hazardous liquids by rail may be seen howpursued by the current administration may act on these proposals.Biden Administration. In addition to action taken or proposed by federal agencies, a number of states have proposed or enacted laws in recent years that encourage safer rail operations or urge the federal government to strengthenenhance requirements for these operations.
Canadian regulators have also taken measures to assess and address risks from theRegulations for rail transport of crude oil by rail. Transportare similar in Canada, phased out the use of DOT-111 tank cars in crude oil service as of November 1, 2016.though specific requirements may vary. Transport Canada has also implemented regulations imposing a 40 mile‑per‑hour speed limit restrictions on certain trains carrying hazardous materials in highly populated areas, requiring railways to give municipalities and first responders more information about the hazardous materials they carry, requiring that approved Emergency Response Assistance Plans be in place prior to transporting certain quantities of hazardous materials,dangerous goods, and requiring railways to carry minimum levels of insurance depending on the quantity of crude oil or dangerous goods that they transport.
We believe we are in substantial compliance with applicable hazardous materials transportation requirements related to our operations. We do not believe that compliance with federal, state or localmunicipal hazardous materials transportation regulations will have a material adverse effect on our financial position, results of operations or cash available for distribution to our unitholders. However, these and future statutes, regulatory changes or initiatives regarding hazardous material transportation, could directly and indirectly increase our operation, compliance and transportation costs and lead to shortages in availability of tank cars. We cannot assure that costs incurred to comply with standards and regulations emerging from these and future rulemakings will not be material to our businesses, financial condition or results of operations. Furthermore, we can provide no assurance that future events, such as changes in existing laws (including changes in the interpretation of existing laws), the promulgation of new laws and regulations, including any voluntary measures by the rail industry, that result in new requirements for the design, construction or operation of tank cars used to transport crude oil or other products, or, or the development or discovery of new facts or conditions will not cause us to incur significant costs. Any such requirements would apply to the industry as a whole.
Employee Safety
We are subject to the requirements of the Occupational Safety and Health Act (“OSHA”) and comparable state
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statutes that regulate the protection of the health and safety of workers. In addition, OSHA’s hazard communication standards requirestandard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens. We believe that we are in substantial compliance with the applicable OSHA requirements.
Item 1A. Risk Factors.
Summary of Risk Factors
We are subject to a variety of risks and uncertainties, including, without limitation risks related to (i) our businesses and underlying regulations governing our operations, (ii) changes in the regulatory and permitting environment, (iii) environmental risks, (iv) tax matters and (v) the COVID-19 pandemic, each of which could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders. Additional discussion of these risks, and other risks that we face, can be found below.
● | 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. |
● | We may not have sufficient cash from operations to enable us to pay distributions on our Series A preferred units or our Series B preferred units (collectively, our “preferred units”) or maintain distributions on our common units at current levels. |
● | Certain of our financial results are subject to seasonality. |
● | Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities. |
● | Our risk management policies cannot eliminate all commodity risk, basis risk or the impact of unfavorable market conditions. In addition, any noncompliance with our risk management policies could result in significant financial losses. |
● | We are exposed to trade credit risk and risk associated with our trade credit support in the ordinary course of our business activities. |
● | Higher prices, new technology and alternative fuels, such as electric, hybrid, battery powered, hydrogen or other alternative fuel-powered motor vehicles, and energy efficiency could reduce demand for our products. |
● | We depend upon marine, pipeline, rail and truck transportation services for logistics activities. Implementation of regulations and directives related to these transportation services as well as disruption in any of these transportation services could adversely affect our logistics activities. |
● | 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. |
● | We may not be able to obtain state fund or insurance reimbursement of our environmental remediation costs. |
● | Our results can be adversely affected by unforeseen events, such as adverse weather, natural disasters, terrorism, cyber attacks, pandemics or other catastrophic events. |
● | Our businesses are subject to federal, state and municipal environmental and non-environmental regulations which could have a material adverse effect on such businesses. |
● | New, stricter environmental laws and other industry-related regulations or environmental litigation could significantly impact our operations and/or increase our costs. |
● | Our operations are subject to a series of risks arising from climate change. |
● | Cyber security breaches and other disruptions could compromise our information and operations, and expose us to liability, which would cause our business and reputation to suffer. |
● | We depend on unionized labor for the operation of certain of our terminals. Any work stoppages or labor disturbances at these terminals could disrupt our businesses. |
● | Our general partner and its affiliates have conflicts of interest and limited fiduciary duties, which could permit |
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them to favor their own interests to the detriment of our unitholders. |
● | 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. |
Risks Related to the COVID-19 Pandemic
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 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.
There is continuing uncertainty surrounding the short-term and long-term impacts of COVID-19 to the national and state economies. Further prolonged periods of economic distress and/or disparate periods of economic recovery could continue to have an adverse effect on our financial condition, results of operation and cash available for distribution to our unitholders. These events could also continue to have or cause adverse effects on the financial condition of our counterparties, suppliers of goods and services we purchase, and purchasers of the goods and services we sell, resulting in further disruption to and decline in our business activities resulting in an adverse impact to our financial condition and results of operations in the future.
Any of the foregoing events or conditions, or other unforeseen consequences of COVID-19 and certain developments in global oil markets, could significantly adversely affect our business and financial condition and the business and financial condition of our customers, suppliers and counterparties. The ultimate extent of the impact of COVID-19 on our business, financial condition and results of operations depends in large part on future developments which are uncertain and cannot be predicted with any certainty at this time. That uncertainty includes the duration of the COVID-19 pandemic, the geographic regions so impacted, the extent of such impact within specific boundaries of those areas, the impact to the local, state and national economies and whether the COVID-19 pandemic has caused a structural shift in such economies such that current levels of economic activity represent a new normal.
To the extent COVID-19 and certain developments in global oil markets adversely affect our business activities, financial condition and results of operations, the COVID-19 pandemic and such developments in global oil markets may also have the effect of heightening many of the other risk factors described herein.
Risks Related to Our Business
We may not have sufficient cash from operations to enable us to pay distributions on our SeriesA Preferred Unitspreferred units 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.
We may not have sufficient available cash each quarter to pay distributions on our Series A Preferred Unitspreferred units and maintain distributions on our common units at current levels. The amount of cash we can distribute on our units principally
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principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:
| competition from other companies that sell refined petroleum products, gasoline blendstocks, renewable fuels and crude oil |
| demand for refined petroleum products, gasoline blendstocks, renewable fuels and crude oil |
| absolute price levels, as well as the volatility of prices, of refined petroleum products, gasoline blendstocks, renewable fuels, RINs and crude oil |
| supply, extreme weather and logistics disruptions; |
| seasonal variation in temperatures which affects demand for home heating oil and residual oil to the extent that it is used for space heating; |
| the level of our operating costs, including payments to our general partner; and |
| prevailing economic conditions. |
In addition, the actual amount of cash we have available for distribution will depend on other factors such as:
| the level of capital expenditures we make; |
| the restrictions contained in our credit agreement and the indentures governing our senior notes, including financial covenants, borrowing base limitations and advance rates; |
| distributions paid on our |
| our debt service requirements; |
| the cost of acquisitions; |
| fluctuations in our working capital needs; |
| our ability to borrow under our credit agreement to make distributions to our unitholders; and |
| the amount of cash reserves established by our general partner. |
The amount of cash we have available for distribution to unitholders depends on our cash flow and does not depend solely on profitability.
The amount of cash we have available for distribution depends primarily on our cash flow, including borrowings, and does not depend solely on profitability, whichprofitability. Our cash flow will be affected by non‑cashnon-cash items. As a result, we may make cash distributions during periods when we record losses and may not make cash distributions during periods when we record net income.
We may not be able to fully implement or capitalize upon planned growth projects.
We could have a number of organic growth projects that may require the expenditure of significant amounts of capital in the aggregate. Many of these projects involve numerous regulatory, environmental, commercial and legal uncertainties beyond our control. As these projects are undertaken, required approvals, permits and licenses may not be
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obtained, may be delayed or may be obtained with conditions that materially alter the expected return associated with the underlying projects. Moreover, revenues associated with these organic growth projects may not increase immediately upon the expenditures of funds with respect to a particular project and these projects may be completed behind schedule or in excess of budgeted cost. We may pursue and complete projects in anticipation of market demand that dissipates or market growth that never materializes. As a result of these uncertainties, the anticipated benefits associated with our capital projects may not be achieved.
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 parcel(s) of real estate suitable for development) terminalling, storage, logistics and/or marketing assets, including gasoline stations, convenience stores and related businesses.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 at the time of consummation 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.
Even if we consummate acquisitions or pursue and complete 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. Any acquisitionsuch transactions involves potential risks, including:
| performance from the acquired assets and businesses or completed growth projects that is below the forecasts we used in evaluating the acquisition; |
| mistaken assumptions about price, demand, market growth, volumes, revenues and costs, including synergies; |
| a project that is behind schedule or in excess of budgeted costs; |
● | a significant increase in our indebtedness and working capital requirements; |
| an inability to hire, train or retain qualified personnel to manage and operate |
| the inability to timely and effectively integrate the operations of recently acquired businesses or assets, particularly those in new geographic areas or in new lines of business; |
| mistaken assumptions about the overall costs of equity or debt; |
| the assumption of substantial unknown or unforeseen environmental and other liabilities arising out of the acquired businesses or assets, including liabilities arising from the operation of the acquired businesses or assets prior to our acquisition, for which we are not indemnified or for which the indemnity is inadequate; |
| limitations on rights to indemnity from the seller; |
| customer or key employee loss from the acquired businesses; |
| unforeseen difficulties operating in new and existing product areas or new and existing geographic areas; and |
| diversion of our management’s and employees’ attention from other business concerns. |
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If any acquisitions we ultimately consummate or projects we pursue and complete do not generate expected increases in cash available for distribution to our unitholders, our ability to increase or maintain distributions on our common units may be reduced.
Our gasoline financial results with particular impact toin our GDSO segment are seasonal and can be lower in the first and fourth quarters of the calendar year.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.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 that we sell.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 are seasonal and 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. Therefore, our results of operations in heating oil and residual oil for the first and fourth calendar quarters can be better than for the second and third quarters.
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‑normalwarmer-than-normal temperatures during the first and fourth calendar quarters in the Northeast can decrease the total volume we sell and the gross profit realized on those sales. Therefore, our results of operations in heating oil and residual oil for the first and fourth calendar quarters can be better than for the second and third quarters.
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 distributions to our unitholders.
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 reduce our revenues and, therefore, reduce our ability to make distributions to our unitholders or increase distributions to our common unitholders. Factors that could lead to a decrease in market demand for products we sell, including refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane include:
| a recession or other adverse economic conditions or an increase in the market price or of an oversupply of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil |
| a shift by consumers to more |
| conversion from consumption of home heating oil or residual oil to natural gas and utilization of propane and/or natural gas (instead of heating oil) as primary fuel |
Certain of our operating costs and expenses are fixed and do not vary with the volumes we store and distribute. Should we experience a reduction in our volumes stored, distributed and sold and in our related logistics activities, such costs and expenses may not decrease ratably or at all. As a result, we may experience declines in our margin if ourthese volumes decrease.
In addition, 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.
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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. A significant decrease in the price for crude oil could adversely affect the economics of domestic crude oil production which, in turn, could have an adverse effect on our crude oil logistics activities and sales. A significant decrease in crude oil differentials could also have an adverse effect on our crude oil logistics activities and sales. The prolonged decline in crude oil prices and crude oil differentials has indicated an impairment of our long-lived assets at our terminals in North Dakota. As a result of these events, we recognized a goodwill and long-lived asset impairment of $149.9 million for year ended December 31, 2016.
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.
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 requiringcould require us to provide collateral. In addition, we could experience a tightening of trade credit from our suppliers.
Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.
As of December 31, 2018,2021, our total debt, including amounts outstanding under our credit agreement and senior notes, was approximately $1.1 billion. We have the ability to incur additional debt, including the capacity to borrow up
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to $1.3$1.35 billion under our credit agreement, subject to limitations in our credit agreement. Our level of indebtedness could have important consequences to us, including the following:
| our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms; |
| covenants contained in our existing and future credit and debt arrangements will require us to meet financial tests that may affect our flexibility in planning for and reacting to changes in our businesses, including possible acquisition opportunities; |
| we will need a substantial portion of our cash flow to make principal and interest payments on our indebtedness, reducing the funds that would otherwise be available for operations, future business opportunities and distributions to unitholders; |
| our debt level will make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our |
| our debt level may limit our flexibility in responding to changing businesses and economic conditions. |
Our ability to service our indebtedness depends upon, among other things, our financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions, such as reducing or eliminating distributions, reducing or delaying our business activities, acquisitions, investments and/or capital expenditures, selling assets, restructuring or refinancing our indebtedness, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms or at all.
A significant increase in interest rates could adversely affect our ability to service our indebtedness.
The interest rates on our credit agreement are variable; therefore, we have exposure to movements in interest rates. A significant increase in interest rates could adversely affect our ability to service our indebtedness. The increased cost could make the financing of our business activities more expensive. These added expenses could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
On March 5, 2021, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after December 31, 2021 for the 1-week and 2-month U.S. dollar settings and after June 30, 2023 for the remaining U.S. dollar settings. Our credit agreement includes provisions to determine a replacement rate for LIBOR if necessary during its term based on the secured overnight financing rate published by the Federal Reserve Bank of New York. We currently do not expect the transition from LIBOR to have a material impact on us. For more information about the interest rates under our senior secured credit agreement, please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Agreement.”
We may not be able to obtain funding on acceptable terms or obtain additional requested funding in excess of total commitments under our credit agreement,at all, which could have a material adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
In the past, globalDisruptions, volatility or otherwise distress in financial markets and overall economic conditions were disrupted and volatile. The debt and equity capital markets were exceedingly distressed. These issues, along with significant write‑offshave in the financial services sector, the re‑pricing of credit risk and the economic conditions, hadpast made and along with any other potentialcould in the future economic or market uncertainties, could make it difficult to obtain funding. Activists concerned about the potential effects of climate change have, in certain instances, directed their attention at sources of funding for fossil-fuel energy companies.companies whose businesses are related to the use of fossil fuels. This could also make it more difficult to secure funding for projects.funding.
As a result, the cost of raising money in the debt and equity capital markets could increase while the availability of funds from those markets could diminish. The cost of obtaining money from the credit markets could increase as
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many lenders and institutional investors increase interest rates, enact tighter lending standards and reduce and, in some cases, cease to provide funding to certain types of borrowers.
In addition, we may be unable to obtain adequate funding under our credit agreement because (i) one or more of our lenders may be unable to meet its funding obligations or (ii) our borrowing base under our credit agreement, as
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redetermined from time to time, may decrease as a result of price fluctuations, counterparty risk, advance rates and borrowing base limitations and customer nonpayment or nonperformance.
Due to these factors, we cannot be certain that funding will be available if needed and to the extent required or requested on acceptable terms. If funding is not available when needed, or is available only on unfavorable terms, we may be unable to maintain our businesses as currently conducted, enhance our existing businesses, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
Operating and financial restrictions and covenants in our credit agreement and the indentures governing our senior notes and borrowing base requirements in our credit agreement may restrict our business and financing activities.
The operating and financial restrictions and covenants in our credit agreement and the indentures governing our senior notes and any future financing agreements could restrict our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example, our credit agreement restricts our ability to:
| grant liens; |
| make certain loans or investments; |
| incur additional indebtedness or guarantee other indebtedness; |
| make any material change to the nature of our businesses or undergo a fundamental change; |
| make any material dispositions; |
| acquire another company; |
| enter into a merger, consolidation, sale-leaseback transaction, joint venture transaction or purchase of assets; |
| make distributions if any potential default or event of default occurs; or |
| modify borrowing base components and advance rates. |
In addition, the indentures governing our senior notes limit our ability to, among other things:
| incur additional indebtedness; |
| make distributions to equity owners; |
| make certain investments; |
| restrict distributions by our subsidiaries; |
● | create liens; |
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|
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|
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| sell assets; or |
| merge with other entities. |
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Our ability to comply with the covenants and restrictions contained in our credit agreement and the indentures may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any of the restrictions, covenants, ratios or tests in our credit agreement or the indentures, a significant portion of our indebtedness may become immediately due and payable, and our lenders’ commitment to make further loans to us may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, our obligations under our credit agreement are secured by substantially all of our assets, and if we are unable to repay our indebtedness under our credit agreement, the lenders could seek to foreclose on such assets.
Restrictions in our credit agreement and the indentures limit our ability to pay distributions upon the occurrence of certain events.
Our credit agreement and the indentures limit our ability to pay distributions upon the occurrence of certain events. For example, each of our credit agreement and the indentures limits our ability to pay distributions upon the occurrence of the following events, among others:
| failure to pay any principal, interest, fees or other amounts when due; |
| failure to perform or otherwise comply with the covenants in the credit agreement, the indentures or in other loan documents to which we are a borrower; and |
| a bankruptcy or insolvency event involving us, our general partner or any of our subsidiaries. |
Any subsequent refinancing of our current debt or any new debt could have similar restrictions. For more information regarding our credit agreement and the indentures, please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Agreement” and Note 78 of Notes to Consolidated Financial Statements.
We can borrow money under our credit agreement to pay distributions, which would reduce the amount of credit available to operate our businesses.
Our partnership agreement allows us to borrow under our credit agreement to pay distributions. Accordingly, we can make distributions on our units even though cash generated by our operations may not be sufficient to pay such distributions. For more information, please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 78 of Notes to Consolidated Financial Statements.
The enactment of derivatives legislation could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price, interest rate and other risks associated with our businesses.
On July 21, 2010, new comprehensive financial reform legislation, known as the Dodd‑FrankDodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), was enacted that establishes federal oversight and regulation of the over‑the‑counterover-the-counter derivatives market and entities, such as us, that participate in that market. The Act requires the CommoditiesCommodity Futures Trading Commission (“CFTC”), the SEC and other regulators to promulgate rules and regulations implementing the new legislation. Although
In January 2021, the CFTC has finalized certain regulations, others remain to be finalized or implemented and it is not possible at this time to predict when this will be accomplished.
In October 2010, pursuant to its rulemaking under the Act, the CFTC issued rules to set position limits for certain futures and option contracts in the major energy markets and for swaps that are their economic equivalents. The initial position limits rule was vacated by the United States District Court for the District of Columbia in September of 2012. However, in December 2016, the CFTC re-proposed new rules that would placeplaced limits on positions in certain core futures and equivalent swaps contracts for, or linked to, certain physical commodities, subject to exceptions for certain bona fide hedging transactions. As theseThe compliance date for certain portions of the new position limit rules are not yet final,was January 1, 2022 while the impact of those provisions on us is uncertain at this time.
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compliance date for other portions of the new rules is January 1, 2023. We currently do not expect the new rules will have a material impact on us.
The CFTC has designated certain interest rate swaps and credit default swaps for mandatory clearing and exchange trading. To the extent we engage in such transactions or transactions that become subject to such rules in the future, we will be required to comply or take steps to qualify for an exemption to such requirements. Although we expect to qualify for the end‑userend-user exception to the mandatory clearing requirements for swaps entered to hedge our commercial risks, the application of the mandatory clearing and trade execution requirements to other market participants, such as swap dealers, may change the cost and availability of the swaps that we use for hedging. If our swaps do not qualify for the commercial end‑userend-user exception, or the cost of entering into uncleared swaps becomes prohibitive, we may be required to clear such transactions. The ultimate effect of the rules and any additional regulations on our businesses is uncertain at this time.
In addition, the Act requires that regulators establish margin rules for uncleared swaps. Banking regulators and the CFTC have adopted final rules establishing minimum margin requirements for uncleared swaps. Although we expect to qualify for the end‑userend-user exception from such margin requirements for swaps entered into to hedge our commercial risks, the application of such requirements to other market participants, such as swap dealers, may change the cost and availability of the swaps that we use for hedging. If any of our swaps do not qualify for the commercial end‑userend-user exception, posting of initial or variation margin could impact our liquidity and reduce cash available for capital expenditures, therefore reducing our ability to execute hedges to reduce risk and protect cash flows.
The CFTC has also adopted a final rule regarding aggregation of positions, under which a party that controls the trading of, or owns 10% or more of the equity interests in, another party will have to aggregate the positions of the controlled or owned party with its own positions for purposes of determining compliance with position limits unless an exemption applies. The CFTC’s aggregation rules are now in effect, though CFTC staff have granted relief—until August 12, 2022—from various conditions and requirements in the final aggregation rules. With the implementation of the final aggregation rules and upon the effectiveness of the final CFTC position limits rule, our ability to execute our hedging strategies described above could be limited.
The full impact of the Act and related regulatory requirements upon our businesses will not be known until all of the related regulations are implemented. The Act and any new regulations could significantly increase the cost of derivative contracts (including from swap recordkeeping and reporting requirements and through requirements to post collateral which could adversely affect our available liquidity), materially alter the terms of derivative contracts, reduce the availability of some derivatives to protect against risks we encounter and reduce our ability to monetize or restructure our existing derivative contracts. If we reduce our use of derivatives as a result of the Act and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Any of these consequences could have material adverse effect on our financial condition, results of operations and cash available for distributions to our unitholders.
In addition, the European Union and other non‑U.S.non-U.S. jurisdictions are implementing regulations with respect to the derivatives market. To the extent we transact with counterparties in foreign jurisdictions, we may become subject to such regulations.
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, any noncompliance with our risk management policies could result in significant financial losses.
While our hedging policies are designed to minimize commodity risk, some degree of exposure to unforeseen fluctuations in market conditions remains. For example, we change our hedged position daily in response to movements in our inventory. If we overestimate or underestimate our sales from inventory, we may be unhedged for the amount of the overestimate or underestimate. Also, significant increases in the costs of the products we sell can materially increase our costs to carry inventory. We use our credit facility as our primary source of financing to carry inventory and may be limited onto the amounts we can borrow to carry inventory.
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Basis risk is the inherent market price risk created when a commodity of certain grade or location is purchased, sold or exchanged as compared to a purchase, sale or exchange of a like commodity at a different time or place. Transportation costs and timing differentials are components of basis risk. For example, we use the NYMEX to hedge our commodity risk with respect to pricing of energy products traded on the NYMEX. Physical deliveries under NYMEX contracts are made in New York Harbor. To the extent we take deliveries in other ports, such as Boston Harbor, we may have basis risk. In a backward market (when prices for future deliveries are lower than current prices), basis risk is created with respect to timing. In these instances, physical inventory generally loses value as basis declines over time. Basis risk cannot be entirely eliminated, and basis exposure, particularly in backward or other adverse market conditions, can adversely affect our financial condition, results of operations and cash available for distribution to our unitholders.
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We monitor processes and procedures to prevent unauthorized trading and to maintain substantial balance between purchases and sales or future delivery obligations. We can provide no assurance, however, that these steps will detect and/or prevent all violations of such risk management policies and procedures, particularly if deception or other intentional misconduct is involved.
We are exposed to trade credit risk and risk associated with our trade credit support in the ordinary course of our business activities.
We are exposed to risks of loss in the event of nonperformance by our customers, by counterparties of our forward and futures contracts, options and swap agreements and by our suppliers. Some of our customers, counterparties and suppliers may be highly leveraged and subject to their own operating and regulatory risks. The tightening of credit in the financial markets may make it more difficult for customers and counterparties to obtain financing and, depending on the degree to which it occurs, there may be a material increase in the nonpayment and nonperformance of our customers and counterparties. Even if our credit review and analysis mechanisms work properly, we may experience financial losses in our dealings with other parties. Any increase in the nonpayment or nonperformance by our customers and/or counterparties and the nonperformance by our suppliers could reduce our ability to make distributions to our unitholders.
Additionally, our access to trade credit support could diminish and/or become more expensive. Our ability to continue to receive sufficient trade credit on commercially acceptable terms could be adversely affected by fluctuations in prices of petroleum productproducts, renewable fuels and renewable fuel pricesother products we sell or disruptions in the credit markets or for any other reason. Any of these events could adversely affect our financial condition, results of operations and cash available for distribution to our unitholders.
We are exposed to performance risk in our supply chain.
We rely upon our suppliers to timely produce the volumes and types of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane for which they contract with us. In the event one or more of our suppliers does not perform in accordance with its contractual obligations, we may be required to purchase product on the open market to satisfy forward contracts we have entered into with our customers in reliance upon such supply arrangements. We may purchase refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane from a variety of suppliers under term contracts and on the spot market. In times of extreme market demand, we may be unable to satisfy our supply requirements. Furthermore, a portion of our supply comes from other countries, which could be disrupted by political events. In the event such supply becomes scarce, whether as a result of political events, natural disaster, logistical issues associated with delivery schedules or otherwise,otherwise. In the event such supply becomes scarce, we may not be able to satisfy our supply requirements. If any of these events were to occur, we may be required to pay more for product that we purchase on the open market, which could result in financial losses and adversely affect our financial condition, results of operations and cash available for distribution to our unitholders.
Historical prices for certain products we sell have been volatile and significant changes in such prices in the future may adversely affect our financial condition, results of operations and cash available for distribution to our unitholders.
Historical prices for certain products we sell have been volatile. General political conditions, acts of war, terrorism and instability in oil producing regions, particularly in the United States, Canada, Middle East, Russia, Africa
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and South America, could significantly impact crude oil supplies and crude oil and refined petroleum product costs. Significant increases and volatility in wholesale gasoline costs could result in significant increases in the retail price of motor fuel products and in lower margins per gallon. Increases in the retail price of motor fuel products could impact consumer demand for motor fuel. This volatility makes it extremely difficult to predict the impact future wholesale cost fluctuations will have on our operating results and financial condition. Dramatic increases in crude oil prices squeeze fuel margins because fuel costs typically increase faster than these increased costs can passbe passed along such increases to customers. Higher fuel prices trigger higher credit card expenses, because credit card fees are calculated as a percentage of the transaction amount, not as a percentage of gallons sold. A significant change in any of these factors could materially impact our customers’ needs, motor fuel gallon volumes, gross profit and overall customer traffic, which in turn could have a
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material adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
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 to new technologies and alternative fuel sources, such as electric, hybrid, battery powered, hydrogen or other alternative fuel‑poweredfuel-powered motor vehicles.
Technological advances and alternative fuel sources, such as electric, hybrid, battery powered, hydrogen or other alternative fuel‑poweredfuel-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‑mandatedgovernment-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 the Clean Power Plan and 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 decreases in sales. Any of these outcomes could negatively affect our financial condition, results of operations and cash available for distribution to our unitholders.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 gasoline sales. A reduction in gasolineour 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 products.heating oil and residual oil.
Higher prices and new technologies and alternative fuel sources, such as electric, hybrid or battery powered motor vehicles, could reduce the demand for transportation fuels and adversely impact our sales of transportation fuels. A reduction in sales of transportation fuels could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders. In addition, increasedIncreased 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 threefour decades. We could face additional competition from alternative energy sources as a result of future government‑mandatedgovernment-mandated controls or regulations further promoting the use of cleaner fuels. End users who are dual‑fueldual-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‑fueldual-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.
Erosion of the value of major gasoline brands could adversely affect our gasoline sales and customer traffic.
As a significant number of our retail gasoline stations and convenience stores are branded Mobil or otherutilizing major gasoline brands, they may be dependent, in part, upon the continuing favorable reputation of such brands. Erosion of the value of major gasoline brands could have a negative impact on our gasoline sales, which in turn may cause our acquisitionoperations to be less profitable.
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We depend upon marine, pipeline, rail and truck transportation services for a substantial portion of our logistics activities in transporting the products we sell. AImplementation 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 whichand 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 activities.business operations. These events could result in service disruptions and increased costcosts 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.
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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 EPA has implemented a RFS 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 biofuelsrenewable 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 the United States. A RIN is assigned to each gallon of renewable fuel produced in or imported into the United States.
We are exposed to the volatility in the market price of RINs. We cannot predict the future prices of RINs. RIN prices are dependent upon a variety of factors, including EPA regulations 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. For more information, please read Part I, Items 1. and 2. “Business and Properties—Environmental—Ethanol Market.” 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 EPA’s RFS mandates, our results of 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 EPA’s regulations on the RFS program and 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‑marketmark-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 EPA for 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.
We may not be able to obtain state fund or insurance reimbursement of our environmental remediation costs.
Where releases of products, including, without limitation, refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane have occurred, federal and state laws and regulations require that contamination caused by such releases be assessed and remediated to meet applicable standards. Our obligation to remediate this type of contamination varies, depending upon applicable laws and regulations and the extent of, and the facts relating to, the release. A portion of the remediation costs for certain petroleum products may be recoverable from the reimbursement fund of the applicable state and/or from third party insurance after any deductible or self-insured retention has been met, but there are no assurances that such reimbursement funds or insurance proceeds will be available to us.
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Potential exposure to products we handle at our facilities could subject us to product liability claims and complaints which could increase our litigation, operating and compliance costs and adversely affect our financial condition and results of operations.
We may be subject to complaints or litigation arising out of alleged contamination and/or exposure to chemicals or other regulated materials, such as various perfluorinated compounds, including perfluorooctanoate, perfluorooctane sulfonate, perfluorohexane sulfonate, or other per- and polyfluoroalkyl substances, benzene and/or petroleum hydrocarbons, at or from our facilities. Such complaints or litigation could have a negative impact on our businesses.
Future consumer or other litigation could adversely affect our financial condition and results of operations.
Our retail gasoline and convenience store operations are characterized by a high volume of customer traffic and by transactions involving an array of products.
These operations carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in many other industries. Consequently, we may become a party to individual personal injury or products liability and other legal actions in the ordinary course of our retail gasoline and convenience store business. Any such action could adversely affect our financial condition and results of operations. Additionally, we are occasionally exposed to industry‑wideindustry-wide or class action claims arising from the products we carry or industry‑specificindustry-specific business practices. Our defense costs and any resulting damage awards or settlement amounts may not be fully covered by our insurance policies. An unfavorable outcome or settlement of one or more of these lawsuits could have a material adverse effect on our financial condition, results of operations and cash available for distributions.
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We may incur costs or liabilities as a result of litigation or adverse publicity resulting from concerns over food quality, health or other issues that could cause customers to avoid our convenience stores.
We may be the subject of complaints or litigation arising from food-related illness or injury in general which could have a negative impact on our businesses. Additionally, negative publicity, regardless of whether the allegations are valid, concerning food quality, food safety or other health concerns, employee relations or other matters related to our prepared food preparation operations may materially adversely affect demand for our offerings and could result in a decrease in customer traffic to our convenience stores.
We depend upon a small number of suppliers for a substantial portion of our convenience store merchandise inventory. A disruption in supply or an unexpected change in our relationships with our principal merchandise suppliers could have an adverse effect on our convenience store results of operations.
We purchase convenience store merchandise inventory from a small number of suppliers for our directly operated convenience stores. A change of merchandise suppliers, a disruption in supply or a significant change in our relationships with our principal merchandise suppliers could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
Governmental action and campaigns to discourage smoking and use of other products may have a material adverse effect on our revenues and gross profit.
Congress has given the FDA broad authority to regulate tobacco and nicotine products, and the FDA, hasstates 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 localmunicipal campaigns to discourage smoking, tax increases, on tobacco products and increasingimposition of regulations restricting the sale of flavored tobacco products, e-cigarettes and vapor products, have and could result in reduced consumption levels, and higher costs which we may not be able to pass on to our customers.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 salessale of cigarettes, or other tobacco products and customer traffic,this product mix which in turn could have a negativean 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,
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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.
Global and national health concerns, such as the outbreak of a pandemic or contagious disease like COVID-19, may adversely affect us by reducing demand for our products. Such a health concern could result in people traveling less and avoiding public spaces, such as convenience stores and other locales where food and sundries are sold, either due to self-imposed or government-mandated restrictions to halt the spread of disease, thereby resulting in a decrease in the demand for our products, including gasoline and other refined petroleum products, and a decrease in sales of food, sundries and other on-site services. Such an event may impair our suppliers’ ability to provide the volumes and types of product and goods we sell. A disease outbreak could affect the health of our workforce or result in travel restrictions, in either case rendering employees unable to work or travel. While these factors and the impact of these factors are difficult to predict, any one or more of them could disrupt our business as we may be unable to continue business operations in a continuous manner consistent with the level and extent of business activities prior to the occurrence of an unexpected event or events, lower our revenues, increase our costs, or reduce our cash available for distribution to our unitholders.
New entrants or increased competition in the convenience store industry could result in reduced gross profits.
We compete with numerous other convenience store chains, independent convenience stores, supermarkets, drugstores, discount warehouse clubs, motor fuel service stations, mass merchants, quick service restaurants, other locales providing food services and other similar retail outlets. Several non-traditional retailers, including supermarkets and club stores, compete directly with convenience stores.
We face intense competition in our purchasing, selling, gathering, blending, terminalling, transporting, storage and logistics activities. Competition from other providers of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane that are able to supply our customers with those products and services at a lower price and have capital resources many times greater than ours could reduce our ability to make distributions to our unitholders.
We are subject to competition from distributors and suppliers of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane that may be able to supply our customers with the same or comparable products and gathering, blending, terminalling, transporting and storage services and logistics on a more competitive basis. We compete with terminal companies, major integrated oil companies and their marketing affiliates, wholesalers, producers and independent marketers of varying sizes, financial resources and experience. In our Northeast market, we compete in various product lines and for all customers.customers of those various products lines. In the residual oil markets, however, where product is heated when stored and cannot be delivered long distances, we face less competition because of the strategic locations of our residual oil storage facilities. We compete with other transloaders in our logistics activities including, in part, storage and transportation of crude oil, and the movement of product by alternative means (e.g., pipelines).activities. We also compete with natural gas suppliers and marketers in our home heating oil and residual oil and propane product lines. Bunkering requires facilities at ports to service vessels.vessels, and we compete with other providers of bunker fuels in those ports. In various other geographic markets, particularly the unbranded gasoline and distillates markets, we compete with integrated refiners, merchant refiners and regional marketing companies. Our retail gasoline stations compete with unbranded and branded retail gas stations as well as supermarket and warehouse stores that sell gasoline.
Some of our competitors are substantially larger than us, have greater financial resources and control greater supplies of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane than we do. If we are unable to compete effectively, we may lose existing customers or fail to acquire new customers, which could have a
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material adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders. For example, if a competitor attempts to increase market share by reducing prices, our operating results and cash available for distribution to our unitholders could be adversely affected. We may not be able to compete successfully with these companies, and our ability to compete could be harmed by factors including price competition and the availability of alternative and less expensive fuels.
New entrants or increased competition in the convenience store industry could result in reduced gross profits.
We compete with numerous other convenience store chains, independent convenience stores, supermarkets, drugstores, discount warehouse clubs, motor fuel service stations, mass merchants, fast food operations and other similar retail outlets. Several non-traditional retailers, including supermarkets and club stores, compete directly with convenience stores.
We may not be able to renew or replace our leases or our agreements for dedicated storage when they expire.
The bulk terminals we own or lease or at which we maintain dedicated storage facilities play a key role in moving product to our customers. As of December 31, 2018,2021, we owned, operated and maintained dedicated storage
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facilities at 18 bulk terminals, leased the entirety of twoone bulk terminalsterminal that we operated exclusively for our businesses, and maintained dedicated storage at fiveseven facilities forat which we have terminalling agreements. TheThese lease and terminalling agreements are subject to expiration at various times through 2019 and 2023, respectively.2023. If these lease and terminalling agreements are not renewed or we are unable to renew them at rates and on terms at leastand conditions satisfactory us or we are otherwise unable to replace such dedicated storage as favorable,may be needed, it could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
We may not be able to lease sites we own or sub‑lease and/or sub-lease sites we lease with respect to the sale of gasoline and/or related activities on favorable terms and any such failure could adversely affect our financial condition, results of operations and cash available for distribution to our unitholders.
If we are unable to obtain tenants on favorable terms for sites we own or lease, the lease payments we receive may not be adequate to cover our rent expense for leased sites andand/or may not be adequate to ensurecover costs associated with ownership of that we meet our debt service requirements.site. We may lease certain sites where the rent expense we pay is more than the lease payments we collect. We cannot provide any assurance that our gross margin from the sale of transportation fuels and related convenience store items at sites will be adequate to offset unfavorable lease terms. The occurrence of these events could adversely affect our financial condition, results of operations and cash available for distribution to our unitholders.
Some of our sales are generated underpursuant to contracts that must be renegotiated or replaced periodically. If we are unable to successfully renegotiate or replace these contracts, our financial condition, results of operations and cash available for distribution to our unitholders could be adversely affected.
Most of our arrangements with our customers are renegotiated or replaced periodically. As these contracts expire, they must be renegotiated or replaced. We may be unable to renegotiate or replace these contracts when they expire, and the terms of any renegotiated contracts may not be as favorable as the contracts they replace. Whether these contracts are successfully renegotiated or replaced is often subject to factors beyond our control. Such factors include fluctuations in refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane prices, counterpartycounterparty’s ability to pay for or accept the contracted volumes and a competitive marketplace for the services offered by us. If we cannot successfully renegotiate or replace our contracts or if we renegotiate or replace them on less favorable terms, sales from these arrangements could decline, and our financial condition, results of operations and cash available for distribution to our unitholders could be adversely affected.
Due to our lack of asset and geographic diversification, adverse developments in the terminals we use or in our operating areas would reduce our ability to make distributions to our unitholders.
We rely primarily on sales generated from products distributed from the terminals we own or control or to which we have access. Furthermore, the majority of ourthose assets and operations are located in the Northeast. Due to our lack of diversification in asset type and location, an adverse development in these businesses or areas, including adverse
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developments due to catastrophic events or weather and corresponding decreases in demand for refined petroleum products, gasoline blendstocks, renewable fuels, crude oil and propane, could have a significantly greater impact on our results of operations and cash available for distribution to our unitholders than if we maintained more diverse assets and locations.
Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured.
We are not fully insured against all risks incident to our businesses. Our operations are subject to operational hazards and unforeseen interruptions such as natural disasters, adverse weather, accidents, fires, explosions, hazardous materials releases, mechanical failures, disruptions in supply infrastructure or logistics and other events beyond our control. If any of these events were to occur, we could incur substantial losses because of personal injury or loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage resulting in curtailment or suspension of our related operations.
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We primarily store gasoline and gasoline blendstocks, renewable fuels, crude oil and propane in underground and above ground storage tanks. Our operations are also subject to significant hazards and risks inherent in storing gasoline.such products. These hazards and risks include fires, explosions, spills, discharges and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally‑imposedgovernmentally-imposed fines or clean‑upclean-up obligations, personal injury or wrongful death claims and other damage to our properties and the properties of others.
Furthermore, we may be unable to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies have increased and could escalate further. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we are not fully insured, it could have a material adverse effect on our financial condition, results of operations and cash available for distribution to 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 localmunicipal 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 localmunicipal 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.
In recent years, the transport of crude oil and ethanol has become subject to additional regulation. The establishment of more stringent design or construction standards, or other requirements for railroad tank cars that are used to transport crude oil and ethanol with too short of a timeframe for compliance may lead to shortages of compliant railcars available to transport crude oil and ethanol, which could adversely affect our businesses. Likewise, in recent years, efforts have commenced to seek to use federal, state and local laws to contest issuance of permits, contest renewal of permits and restrict the types of railroad tanks cars that can be used to deliver products, including, without limitation, crude oil and ethanol to bulk storage terminals. Were such laws to come into effect and were they to survive appeals and judicial review, they would potentially expose our operations to duplicative and possibly inconsistent regulation.
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
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companies in the energy industry related to climate change. Should such suits succeed, we could face additional compliance costs or litigation risks. For more information, please read Part I, Items 1. and 2. “Business and Properties—Environmental—Climate Change.”
Our terminalling operations are subject to federal, state and localmunicipal laws and regulations relating to environmental protection and operational safety that could require us to incur substantial costs.
The risk of substantial environmental costs and liabilities is inherent in terminal operations, and we may incur substantial environmental costs and liabilities. Our terminalling operations involving the receipt, storage and delivery of primarily refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane are subject to stringent federal, state and localmunicipal laws and regulations governing the discharge of materials into the environment, or otherwise relating to the protection of the environment, operational safety and related matters. Compliance with these laws and regulations increases our overall cost of business, including our capital costs to maintain and upgrade equipment and facilities. We utilize a number of terminals that are owned and operated by third parties who are also subject to these stringent federal, state and localmunicipal environmental laws in their operations. Their compliance with these requirements could increase the cost of doing business with these facilities. Please read Part I, Items 1. and 2. “Business and Properties—Environmental.”
In addition, our operations could be adversely affected if shippers of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane incur additional costs or liabilities associated with regulations, including environmental regulations. These shippers could increase their charges to us or discontinue service altogether. Similarly, many of our suppliers face a trend of increasing environmental regulations, which could likewise restrict their ability to
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produce crude oil or fuels, or increase their costs of production, and thus impact the price of, and/or their ability to deliver, these products.
Various governmental authorities, including the EPA, have the power to enforce compliance with these regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties, including fines, injunctions or both. Joint and several liability may be incurred, without regard to fault or the legality of the original conduct, under federal and state environmental laws for the remediation of contaminated areas at our facilities and those where we do business. Private parties, including the owners of properties located near our terminal facilities and those with whom we do business, also may have the right to pursue legal actions against us to enforce compliance with environmental laws, as well as seek damages for personal injury or property damage. We may also be held liable for damages to natural resources.
The possibility exists that new, stricter laws, regulations or enforcement policies could significantly increase our compliance costs and the cost of any remediation that may become necessary, some of which may be material. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage in the event an environmental claim is made against us. We may incur increased costs because of stricter pollution control requirements or liabilities resulting from noncompliance with, or renewal of required operating or other regulatory permits. New environmental regulations, such as those related to the emissions of GHGs, might adversely affect the market for our products and activities, including the storage of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil, and propane, as well as our waste management practices and our control of air emissions. Enactment of laws and passage of regulations regarding GHG emissions, or other actions to limit GHG emissions may reduce demand for fossil fuels and impact our businesses. Federal, state and statemunicipal agencies also could impose additional safety regulations to which we would be subject. Because the laws and regulations applicable to our operations are subject to change, we cannot provide any assurance that compliance with future laws and regulations will not have a material effect on our results of operations.
Additionally, the construction of new terminals or the expansion of an existing terminal involves numerous regulatory, environmental, political and legal uncertainties, most of which are not in our control. Delays, litigation, local concerns and difficulty in obtaining approvals for projects requiring federal, state or localmunicipal permits could impact our ability to build, expand and operate strategic facilities and infrastructure, which could adversely impact growth and operational efficiency.
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risks arising from climate change.
Increased regulationThe threat of climate change continues to attract considerable attention in the United States and in foreign countries. In the United States, no comprehensive climate change legislation has been implemented at the federal level. However, President Biden has highlighted addressing climate change as a priority of his administration, which includes certain potential initiatives for climate change legislation to be proposed and passed into law. Moreover, federal regulators and state and local governments have taken (or announced that they plan to take) actions that have or may have a significant influence on our operations. For example, following the finding that GHG emissions could result in increased operating costs and reduced demand for refined petroleum products as a fuel source, which could reduce demand for our products, decrease our revenues and reduce our profitability.
Combustion of fossil fuels, such as the refined petroleum products we sell, results in the emission of carbon dioxide into the atmosphere. On December 15, 2009, the EPA published its findings that emissions of carbon dioxide and other GHGs present an endangerment tomethane threaten the public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth’s atmosphere and other climatic changes. Based on these findings,welfare, the EPA has promulgated or adopted regulations to addressregulate GHG emissions from the combustion of fossil fuels fromcertain large stationary sources. With respectsources, require the monitoring and reporting of GHG emissions from certain sources, implement emissions standards for certain sources in the oil and gas sector, and (together with NHTSA), implement GHG emissions limits on vehicles manufactured for operation in the United States. Separately, President Biden has already issued a suite of executive orders that, among other things, recommitted the United States to emissionsthe Paris Agreement, called for the revision of GHGs fromTrump Administration changes to the useCAFE standards, and called for the issuance of fossil fuelsmethane-emission standards for mobile sources,new, modified, and existing oil and gas facilities, including in the transmission and storage segments. In 2021, the EPA has also issued Corporate Average Fuel Economy (“CAFE”) standards for fleets of 2022-2025 model year vehicles that may, should the standards become effective, reduce demand for gasoline, thereby reducing emissions of GHGs from the operation of motor vehicles and also reducing demand for our products and services.proposed several federal regulations to try to fulfill these directives. In addition, it is possible federal legislation could be adopted in the future to restrict GHGs, as Congress has considered various proposals to reduce GHG emissions from time to time. Many states and regions have also adopted GHG initiatives. PleaseFor further information, please read Part I, Items 1. and 2. “Business and Properties—Environmental—Air Emissions.Climate Change.”
Future international, federal and state initiatives to control GHG emissions or an unfavorable outcome in the methane judicial challenges, could result in increased costs associated with refined petroleum products consumption, such as costs to install additional controls to reduce GHG
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emissions or costs to purchase emissions reduction credits to comply with future emissions trading programs. Please read Part I, Items 1. and 2. “Business and Properties—Environmental—Air Emissions.Climate Change.” Such increased costs could result in reduced demand for refined petroleum products and some customers switching to alternative sources of fuel which could have a material adverse effect on our financial condition, results of operations and cash available for distributions to our unitholders.
Climate change continues to attract considerable public and scientific attention. Recently,This attention has also resulted in increased political risks, including climate change related pledges made by certain candidates for public office. These have included promises to curtail oil and gas operations on federal land, such as through the cessation of leasing federal land for hydrocarbon development. On January 27, 2021, President Biden issued an executive order that commits to substantial action on climate change calling for, among other things, the increased use of zero-emission vehicles by the federal government, the elimination of subsidies provided to the fossil fuel industry, and increased emphasis on climate-related risk across governmental agencies and economic sectors. Other actions that could be pursued include more restrictive requirements for the development of midstream infrastructure. Additionally, litigation has been filed against companies in the energy industry related to climate change. Although the litigation is varied, many such suits allege that oil and gas companies have created public nuisances by producing fuels that contribute to climate change or allege that the companies have been aware of the adverse effects of climate change for some time but failed to adequately disclose those impacts to their investors and customers. Should such suits succeed, we could face additional compliance costs or litigation risks.
Additionally, in response to concerns related to climate change, companies in the fossil fuel sector may be exposed to increasing financial risks. Certain financial institutions, including investment advisors and certain sovereign wealth, pension, and endowment funds, may elect in the future to shift some or all of their investment into non-fossil fuel related sectors. There is also a risk that financial institutions may be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector. Recently, the Federal Reserve announced that it has joined the Network for Greening the Financial System, a consortium of financial regulators focused on addressing climate-related risks in the financial sector. This could make it more difficult to secure funding.
Separately, many scientists have concluded that increasing concentrations of GHG in the earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events. If any of those effects were to occur in areas where our facilities are located, they could have an adverse effect on our assets and operations.
Our businesses involve the buying, selling, gathering, blending and shipping of refined petroleum products, gasoline blendstocks,renewable fuels and crude oil by rail,various modes of transportation, which involves risks of derailment, accidents and liabilities associated with cleanup and damages, as well as potential regulatory changes that may adversely impact our businesses, financial condition or results of operations.
Our operations involve the buying and selling, gathering and blending of refined petroleum products, gasoline blendstocks, renewable fuels andcrude oil and shipping it by rail to various markets including on railcars that we lease. The derailments of trains transporting such products in North America have caused various regulatory agencies and industry organizations, as well as federal, state and municipal governments, to focus attention on transportation by rail of flammable materials. Additional measures have been taken in both the United States. and Canada to regulate the transportation of these products. Please read Part I, Items 1. and 2. “Business and Properties—Environmental— Hazardous Materials Transportation.”
Any changes to the existing laws and regulations, or promulgation of new laws and regulations, including any voluntary measures by the rail industry, that result in new requirements for the design, construction or operation of tank cars, including those used to transport crude oil or other products, may require us to make expenditures to comply with new standards that are material to our operations, and, to the extent that new regulations require design changes or other modifications of tank cars, we may incur significant constraints on transportation capacity during the period while tank cars are being retrofitted or newly constructed to comply with the new regulations. We cannot assure that the totality of costs incurred to comply with any new standards and regulations and any impacts on our operations will not be material to our businesses, financial condition or results of operations. In addition, any derailment of railcars involvingor other events
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related to products that we have purchased or are shipping may result in claims being brought against us that may involve significant liabilities. Although we believe that we are adequately insured against such events, we cannot assure you that our policies will cover the entirety of any damages that may arise from such an event.
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We are subject to federal, state and localmunicipal laws and regulations that govern the product quality specifications of the refined petroleum products, gasoline blendstocks,renewable fuels, crude oil and propane we purchase, store, transport and sell.
Various federal, state and localmunicipal government agencies have the authority to prescribe specific product quality specifications to the sale of commodities. Our businesses include such commodities. Changes in product quality specifications, such as reduced sulfur content in refined petroleum products, or other more stringent requirements for fuels, could reduce our ability to procure product and ouradversely impact related sales volume, require us to incur additional handling costs and/or require the expenditure of capital. For instance, different product specifications for different markets could require additional storage. If we are unable to procure product or recover these costs through increased sales, we may not be able to meet our financial obligations. Failure to comply with these regulations could also result in substantial penalties.
We are subject to federal, state and statemunicipal environmental regulations which could have a material adverse effect on our retail operations business.
Our retail operations are subject to extensive federal, state and statemunicipal laws and regulations, including those relating to the protection of the environment, waste management, discharge of hazardous materials, pollution prevention, as well as laws and regulations relating to public safety and health. Certain of these laws and regulations may require assessment or remediation efforts. Retail operations with USTs are subject to federal and state regulations and legislation. Compliance with existing and future environmental laws regulating USTs may require significant capital expenditures and increased operating and maintenance costs. The operation of USTs also poses certain other risks, including damages associated with soil and groundwater contamination. Leaks from USTs which may occur at one or more of our gas stations may impact soil or groundwater and could result in fines or civil liability for us. We may be required to make material expenditures to modify operations, perform site cleanups or curtail operations.
We are subject to federal and state non‑environmentalnon-environmental regulations which could have an adverse effect on our convenience store business and results of operations.
Our convenience store business is subject to extensive governmental laws and regulations that include legal restrictions on the sale of alcohol, tobacco and lottery products, food labelling, food preparation, safety and health requirements and public accessibility. Furthermore, state and local regulatory agencies have the power to approve, revoke, suspend, or deny applications for and renewals of permits and licenses relating to the sale of alcohol, tobacco and lottery products or to seek other remedies. A violation of or change in such laws and/or regulations could have an adverse effect on our convenience store business and results of operations.
Regulations related to wages also affect our businesses. Any increase in the statutory minimum wage would result in an increase in our labor costs and such cost increase could adversely affect our businesses, financial condition and results of operations.
Any terrorist attacks aimed at our facilities and any global and domestic economic repercussions from terrorist activities and the government’s response could adversely affect our financial condition, results of operations and cash available for distribution to our unitholders.
Since the September 11, 2001 terrorist attacks on the United States, the U.S. government has issued warnings that energy assets may be future targets of terrorist organizations. In addition to the threat of terrorist attacks, we face various other security threats, including cyber security threats to gain unauthorized access to sensitive information or systems or to render data or systems unusable; threats to the safety of our employees; threats to the security of our facilities, such as terminals and pipelines, and infrastructure or third‑partythird-party facilities and infrastructure. These developments have subjected our operations to increased risks.
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Although we utilize various procedures and controls to monitor these threats and mitigate our exposure to security threats, there can be no assurance that these procedures and controls will be sufficient in preventing security threats from materializing. If any of these events were to materialize, they could lead to losses of sensitive information, critical infrastructure, personnel or capabilities, essential to our operations and could have a material adverse effect on
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our reputation, financial position, results of operations, or cash flows. Cyber security attacks in particular are evolvingcontinue to evolve and include malicious software, attempts to gain unauthorized access to, or otherwise disrupt, our pipeline control systems, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, including our pipeline control systems, unauthorized release of confidential or otherwise protected information and corruption of data. These events could damage our reputation and lead to financial losses from remedial actions, loss of business or potential liability.
We incur costs for providing facility security and may incur additional costs in the future with respect to the receipt, storage and distribution of our products. Additional security measures could also restrict our ability to distribute refined petroleum products, gasoline blendstocks, renewable fuels, crude oil and propane. Any future terrorist attack on our facilities, or those of our customers, could have a material adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
Terrorist activity could lead to increased volatility in prices for home heating oil, gasoline and other products we sell, which could decrease our customers’ demand for these products. Insurance carriers are required to offer coverage for terrorist activities as a result of federal legislation. We purchase this coverage with respect to our property and casualty insurance programs. This additional coverage resulted in additional insurance premiums which could increase further in the future.
Cyber security breaches and other disruptions could compromise our information and operations, and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, in our data centers and on our networks, we collect and store sensitive data including, without limitation, our proprietary business information and that of our customers, suppliers and business partners, information with respect to potential ventures and transactions, and personally identifiable information of our employees, customers and business partners. The secure storage, processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures and those of our vendors and suppliers, our information technology and infrastructure may be vulnerable to ransomware, malware or other cyber attacks by hackers, employee error or malfeasance, natural disasters, power loss, telecommunication failures or other disruptions, or as a result of similar disruptions experienced by our business partners, suppliers and/or vendors. While there have been incidents of security breaches and unauthorized access to our information technologies, we have not experienced any material impact to our operations or business as a result of this attack; however, other similar incidents could have a significant negative impact on our systems and operations. Any such cyber attack or breach or other disruption could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information or loss of access to information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption of our operations, damage to our reputation, and loss of confidence in our ability to supply our products and services or maintain the security of information we collect and store, which could adversely affect our business. In addition, as technologies evolve, cyber attacks become increasingly sophisticated, and the regulatory framework for data privacy and security worldwide continues to evolve and develop, we may incur significant costs to modify, upgrade or enhance our security measures and we may face difficulties in fully anticipating or implementing adequate security measures or new or revised mandated processes or in generally mitigating potential harm. Further, any actual or perceived failure to comply with any new or existing laws, regulations and other obligations could result in fines, penalties or other liability.
We depend on key personnel for the success of our businesses.
We depend on the services of our senior management team and other key personnel. The loss of the services of any member of senior management or key employee could have an adverse effect on our financial condition, results of
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operations and cash available for distribution to our unitholders. We may not be able to locate or employ on acceptable terms qualified replacements for senior management or other key employees if their services were no longer available.
Certain executive officers of our general partner perform services for one of our affiliates pursuant to a shared services agreement. Please read Part III, Item 13, “Certain Relationships and Related Transactions, and Director Independence—Relationship of Management with Global Petroleum Corp.Services Agreement.”
We depend on unionized labor for the operation of certain of our terminals. Any work stoppages or labor disturbances at these terminals could disrupt our businesses.
Any work stoppages or labor disturbances by our unionized labor force at facilities with an organized workforce could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders. In addition, employees who are not currently represented by labor unions may seek representation in the future, and any renegotiation of collective bargaining agreements may result in terms that are less favorable to us.
We rely on our information technology systems to manage numerous aspects of our businesses, and a disruption of these systems could adversely affect our businesses.
We depend on our information technology (“IT”) systems to manage numerous aspects of our businesses and to provide analytical information to management. Our IT systems are an essential component of our businesses and growth strategies, and a serious disruption to our IT systems could significantly limit our ability to manage and operate our businesses effectively. These systems are vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of telecommunication services, physical and electronic loss of data, cyber and other security breaches and computer viruses. While we believe we have adequate systems and controls in place, we are continuously working to install new, and upgrade our existing, information technology systems and provide employee awareness around phishing, malware and other cyber risks in an effort to ensure that we are protected against cyber risks and security breaches. We have a disaster recovery plan in place, but this plan may not entirely prevent delays or other complications that could arise from an IT systems failure.failure or disruption. Any failure or interruption in our IT systems could have a negative impact on our operating results, cause our businesses and competitive position to suffer and damage our reputation.
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In the normal course of our businesses, we may obtain personal data, including credit card information. While we believe we have adequate cyber and other security controls over individually identifiable customer, employee and vendor data provided to us, a breakdown or a breach in our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could nonetheless occur and have a material adverse effect on our reputation, operating results and financial condition.
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If we fail to maintain an effective system of internal controls, then we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential unitholders could lose confidence in our financial reporting, which wouldcould harm our businesses and could adversely influence the trading price of our units.
Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. If our efforts to maintain internal controls are not successful or if we are unable to maintain adequate controls over our financial processes and reporting in the future or if we are unable to comply with our obligations under Section 404 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002, our operating results could be harmed or we may fail to meet our reporting obligations. Ineffective internal controls also could cause investors to lose confidence in our reported financial information, which would likelycould have a negative effect on the trading price of our units.
Risks Related to our Structure
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.
As of March 5, 2019,February 22, 2022, affiliates of our general partner, including directors and executive officers and their affiliates, owned 21.5%12.9% of our common units and the entire general partner interest. Although our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders, the directors and officers of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to its owners. Furthermore, certain directors and officers of our general partner are directors or officers of affiliates of our general partner. Conflicts of interest may arise between our general partner and its affiliates, on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. Please read “—Our partnership agreement limits our general partner’s fiduciary duties to unitholders and restricts the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.” These conflicts include, among others, the following situations:
| Our general partner is allowed to take into account the interests of parties other than us, such as affiliates of its members, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders. |
| Affiliates of our general partner may engage in competition with us under certain circumstances. Please read “—Certain members of the Slifka family and their affiliates may engage in activities that compete directly with us.” |
| Neither our partnership agreement nor any other agreement requires owners of our general partner to pursue a business strategy that favors us. Directors and officers of our general partner’s owners have a fiduciary duty to make these decisions in the best interest of such owners which may be contrary to our interests. |
| Some officers of our general partner who provide services to us devote time to affiliates of our general partner. |
| Our general partner has limited its liability and reduced its fiduciary duties under the partnership agreement, while also restricting the remedies available to our unitholders for actions that, without these limitations, might constitute breaches of fiduciary duty. As a result of purchasing common units, common unitholders consent to some actions and conflicts of interest that might otherwise constitute a breach of |
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fiduciary or other duties under applicable state law. Additionally, our partnership agreement provides that we, and the officers and directors of our general partner, do not owe any duties, including fiduciary duties, or have any liabilities to holders of |
| Our general partner determines the amount and timing of asset purchases and sales, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash available for distribution to our unitholders. |
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| Our general partner determines the amount and timing of any capital expenditures and whether a capital expenditure is a maintenance capital expenditure, which reduces distributable cash flow, or a capital expenditure for acquisitions or capital improvements, which does not, and such determination can affect the amount of cash distributed to our unitholders. |
| In some instances, our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make incentive distributions. |
| Our general partner determines which costs incurred by it and its affiliates are reimbursable by us. |
| Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered on terms that are fair and reasonable to us or entering into additional contractual arrangements with any of these entities on our behalf. |
| Our general partner intends to limit its liability regarding our contractual and other obligations. |
| Our general partner may exercise its limited right to call and purchase common units if it and its affiliates own more than 80% of the common units. |
| Our general partner controls the enforcement of obligations owed to us by it and its affiliates. |
| Our general partner decides whether to retain separate counsel, accountants or others to perform services for us. |
Please read Part III, Item 13, “Certain Relationships and Related Transactions, and Director Independence—Noncompetition.”
Our partnership agreement limits our general partner’s fiduciary duties to unitholders and restricts the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.
Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. Our partnership agreement provides that we, and the officers and directors of our general partner, do not owe any duties, including fiduciary duties, or have any liabilities to holders of the Series A Preferred Units.our preferred units. Additionally, our partnership agreement:
| permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples include the exercise of its limited call right, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation of us; |
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| provides that our general partner shall not have any liability to us or our unitholders for decisions made in its capacity as general partner so long as it acted in good faith, meaning it believed that the decision was in our best interests; |
| generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and |
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| provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and |
By purchasing a unit, a unitholder will become bound by the provisions of the partnership agreement, including the provisions described above.
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.
Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our businesses and, therefore, limited ability to influence management’s decisions regarding our businesses. Unitholders have no right to elect our general partner or its board of directors on an annual or other continuing basis. The board of directors of our general partner is chosen entirely by its members and not by the unitholders. Furthermore, if the unitholders are dissatisfied with the performance of our general partner, they have limited ability to remove our general partner. The vote of the holders of at least 66 2/3% of all outstanding common units (including common units held by our general partner and its affiliates) is required to remove our general partner.
Although the holders of the Series A Preferred Unitsour preferred units are entitled to limited protective voting rights with respect to certain matters, the Series A Preferred Unitsour preferred units generally vote separately as a class along with any other series of parity securities that we may issue upon which like voting rights have been conferred and are exercisable. As a result, the voting rights of holders of Series A Preferred Unitsour preferred units may be significantly diluted, and the holders of such other series of parity securities that we may issue may be able to control or significantly influence the outcome of any vote.
As a result of these limitations, the prices at which theour common units and the Series A Preferred Unitsour preferred units trade could diminish because of the absence or reduction of a takeover premium in the trading price.
We may issue additional units without unitholder approval, which would dilute unitholders’ ownership interests.
Except in the case of the issuance of units that rank equal to or senior to the Series A Preferred Units,our preferred units, we may issue an unlimited number of limited partner interests of any type without the approval of our unitholders. We are allowed to issue additional Series A Preferred Unitspreferred units and parity securities without any vote of the holders of the Series A Preferred Units,our preferred units, except where the cumulative distributions on the Series A Preferred Unitsour preferred units or any parity securities are in arrears.
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The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:
| our unitholders’ proportionate ownership interest in us will decrease; |
| the amount of cash available for distribution on each unit may decrease; |
| the relative voting strength of each previously outstanding unit may be diminished; and |
| the market price of the units may decline. |
We are prohibited from paying distributions on our common units if distributions on our SeriesA Preferred Unitspreferred units are in arrears.
The holders of our Series A Preferred Unitspreferred units are entitled to certain rights that are senior to the rights of holders of our common units, such as rights to distributions and rights upon liquidation of the Partnership. If we do not pay the required distributions on our Series A Preferred Units,preferred units, we will be unable to pay distributions on our common units. Additionally, because
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distributions to our Series A Preferred unitholderspreferred units are cumulative, we will have to pay all unpaid accumulated preferred distributions before we can pay any distributions to our common unitholders. Also, because distributions to our common unitholders are not cumulative, if we do not pay distributions on our common units with respect to any quarter, our common unitholders will not be entitled to receive distributions covering any prior periods if we later commence paying distributions on our common units. The preferences and privileges of the Series A Preferred Unitsour preferred units could adversely affect the market price for our common units, or could make it more difficult for us to sell our common units in the future.
Our SeriesA Preferred Unitspreferred units are subordinated to our existing and future debt obligations and could be diluted by the issuance of additional units, including additional SeriesA Preferred Units,preferred units, and by other transactions.
The Series A Preferred UnitsOur preferred units are subordinated to all of our existing and future indebtedness. The payment of principal and interest on our debt reduces cash available for distribution to our limited partners, including the holders of our Series A Preferred Units.preferred units. The issuance of additional units on parity with or senior to the Series A Preferred Unitsour preferred units (including additional Series A Preferred Units)preferred units) would dilute the interests of the holders of the Series A Preferred Units,our preferred units, and any issuance of equal or senior ranking securities or additional indebtedness could affect our ability to pay distributions on, redeem or pay the liquidation preference on the Series A Preferred Units.our preferred units.
We cannot assure that we will be able to pay distributions on our SeriesA Preferred Unitspreferred units regularly, and the agreements governing our indebtedness may limit the cash available to make distributions on the SeriesA Preferred Units.our preferred units.
Pursuant to our partnership agreement, we distribute all of our “available cash” each quarter to our limited partners. Our partnership agreement defines “Available Cash” to generally mean, for each fiscal quarter, all cash and cash equivalents on hand on the date of determination of available cash with respect to such quarter, less the amount of any cash reserves established by our general partner to:
| provide for the proper conduct of our businesses; |
| comply with applicable law or the terms of any of our debt instruments or other agreements; or |
| provide funds for distributions to holders of our common units and |
As a result, we do not expect to accumulate significant amounts of cash. Depending on the timing and amount of our cash distributions, these distributions could significantly reduce the cash available to us in subsequent periods to
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make distributions on the Series A Preferred Units.our preferred units.
Further, our existing debt agreements also may limit our ability to pay distributions on the Series A Preferred Units.our preferred units.
Change of control conversion rights may make it more difficult for a party to acquire us or discourage a party from acquiring us.
The change of control conversion feature of the Series A Preferred Unitsour preferred units may have the effect of discouraging a third party from making an acquisition proposal for us or of delaying, deferring or preventing certain of our change of control transactions under circumstances that otherwise could provide the holders of our common units and Series A Preferred Unitspreferred units with the opportunity to realize a premium over the then-current market price of such equity securities or that unitholders may otherwise believe is in their best interests.
The market price of our common units could be adversely affected by sales of substantial amounts of our common units, including sales by our existing unitholders.
A substantial number of our securities may be sold in the future either pursuant to Rule 144 under the Securities Act or pursuant to a registration statement filed with the SEC. Rule 144 under the Securities Act provides that after a holding period of six months, non‑affiliatesnon-affiliates may resell restricted securities of reporting companies, provided that current public information for the reporting company is available. After a holding period of one year, non‑affiliatesnon-affiliates may resell
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without restriction, and affiliates may resell in compliance with the volume, current public information and manner of sale requirements of Rule 144. Pursuant to our partnership agreement, members of the Slifka family have registration rights with respect to the common units owned by them.
Sales by any of our existing unitholders of a substantial number of our common units, or the perception that such sales might occur, could have a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities.
Future market fluctuations may result in a lower price of our common units.
An increase in interest rates may cause the market price of our units to decline.
Like all equity investments, an investment in our common units is subject to certain risks. In exchange for accepting these risks, investors may expect to receive a higher rate of return than would otherwise be obtainable from lower‑risklower-risk investments. Accordingly, as interest rates rise, the ability of investors to obtain higher risk‑adjustedrisk-adjusted rates of return by purchasing government‑backedgovernment-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield‑basedyield-based equity investments such as publicly‑tradedpublicly-traded limited partnership interests. Reduced demand for our common units resulting from investors seeking other more favorable investment opportunities may cause the trading price of our common units to decline.
One of the factors that influences the price of the Series A Preferred Unitsour preferred units is the distribution yield on the Series A Preferred Unitsour preferred units (as a percentage of the price of the Series A Preferred Units)our preferred units) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of the Series A Preferred Unitsour preferred units to expect a higher distribution yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution to our limited partners, including the holders of the Series A Preferred Units.our preferred units. Accordingly, higher market interest rates could cause the market price of the Series A Preferred Unitsour preferred units to decrease.
In addition, on and after August 15, 2023, theour Series A Preferred Unitspreferred units will have a floating distribution rate set each quarterly distribution period at a percentage of the $25.00 liquidation preference equal to a floating rate of the then-current three-month LIBOR (or if LIBOR is no longer available as otherwise provided for in our partnership agreement) plus a spread of 6.774% per annum. The per annum distribution rate that is determined on the relevant determination date will apply to the entire quarterly distribution period following such determination date even if LIBOR (or an alternative rate, as applicable) increases during that period. As a result, the holders of theour Series A Preferred Unitspreferred units will be subject to
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risks associated with fluctuation in interest rates and the possibility that holders will receive distributions that are lower than expected. We have no control over a number of factors, including economic, financial and political events, that impact market fluctuations in interest rates, which have in the past and may in the future experience volatility.
Our general partner has a limited call right that may require unitholders to sell their common units at an undesirable time or price.
If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then‑currentthen-current market price. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right. If our general partner exercises its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934.
Our partnership agreement restricts the voting rights of unitholders owning 20% or more of any class of our units.
Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees
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and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter. Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.
Cost reimbursements due to our general partner and its affiliates will reduce cash available for distribution to our unitholders.
Prior to making any distribution on the common units, we reimburse our general partner and its affiliates for all expenses they incur on our behalf, which is determined by our general partner in its sole discretion. These expenses include all costs incurred by the general partner and its affiliates in managing and operating us, including costs for rendering corporate staff and support services to us. We are managed and operated by directors and executive officers of our general partner. In addition, the majority of our operating personnel are employees of our general partner. Please read Part III, Item 13, “Certain Relationships and Related Transactions, and Director Independence.” The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates could adversely affect our ability to pay cash distributions to our unitholders.
Unitholders may not have limited liability if a court finds that unitholder action constitutes control of our businesses.
A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law, and we conduct business in a number of other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which we do business. A unitholder could be liable for our obligations as if he were a general partner if:
| a court or government agency determined that we were conducting business in a state but had not complied with that particular state’s partnership statute; or |
| a unitholder’s right to act with other unitholders to remove or replace the general partner, approve some amendments to our partnership agreement or take other actions under our partnership agreement constitute “control” of our businesses. |
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Unitholders may have liability to repay distributions.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Delaware law, we may not make a distribution to unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Purchasers of units who become limited partners are liable for the obligations of the transferring limited partner to make contributions to us that are known to the purchaser of units at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interests and liabilities that are non‑recoursenon-recourse to us are not counted for purposes of determining whether a distribution is permitted.
The control of our general partner may be transferred to a third party without unitholder consent.
Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders. Furthermore, there is no restriction in the partnership agreement on the ability of the members of our general partner from transferring their respective membership interests in our general partner to a third party. The new members of our general partner would then be in a position to replace the board of directors and officers of our general partner with their own choices and control the decisions taken by the board of directors and officers of our general partner.
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Certain members of the Slifka family and their affiliates may engage in activities that compete directly with us.
Mr. Richard Slifka and his affiliates (other than us) are subject to noncompetition provisions in the omnibus agreement and business opportunity agreement. In addition, Mr. Eric Slifka’s and Mr. Andrew Slifka’s employment agreements containagreement contains noncompetition provisions. These agreements do not prohibit Messrs. Richard Slifka Eric Slifka and AndrewEric Slifka and certain affiliates of our general partner from owning certain assets or engaging in certain businesses that compete directly or indirectly with us. Please read Part III, Item 13, “Certain Relationships and Related Transactions, and Director Independence—Noncompetition.”
Tax Risks
Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes and not being subject to a material amount of entity-level taxation. If the Internal Revenue Service, or IRS, were to treat us as a corporation for U.S. federal income tax purposes, or we become subject to entity level taxation for state tax purposes, our cash available for distribution to our unitholders would be substantially reduced.
The anticipated after‑taxafter-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for U.S. federal income tax purposes.
Despite the fact that we are organized as a limited partnership under Delaware law, we would be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement. Based upon our current operations and current Treasury Regulations, we believe we satisfy the qualifying income requirement. However, no ruling has been or will be requested regarding our treatment as a partnership for U.S. federal income tax purposes. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate. Distributions to our unitholders would generally be taxed again as corporate distributions, and no income, gains, losses or deductions would flow through to our unitholders. Because a tax would be imposed upon us as a corporation, our cash available for distribution to our unitholders would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.
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Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to additional amounts of entity level taxation for U.S. federal, state, localmunicipal or foreign income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law or interpretation on us. At the state level, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation. We currently own assets and conduct business in several states that impose a margin or franchise tax. In the future, we may expand our operations. Imposition of a similar tax on us in other jurisdictions that we may expand to could substantially reduce our cash available for distribution to our unitholders.
The tax treatment of publicly traded partnerships or an investment in our units generally could be negatively impacted by futuresubject to potential legislative, judicial or administrative changes in applicable tax laws or differing interpretations thereof, possibly applied on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our units, may be negatively impactedmodified by future administrative, legislative or judicial changes or differing interpretations thereof at any time. For example, fromFrom time to time, members of Congress have proposed and considered substantive changes to the existing U.S. federal income tax laws that would affect publicly traded partnerships, including a prior legislative proposalproposals that would eliminate our ability to qualify for partnership tax treatment. Recent proposals have eliminatedprovided for the expansion of the qualifying income exception to the treatment of allfor publicly traded partnerships as corporationsin certain circumstances and other proposals have provided for the total elimination of the qualifying income exception upon which we rely for our treatment as a partnership for U.S. federal income tax purposes. treatment.
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In addition, the Treasury Department has issued, and in the future may issue, regulations interpreting those laws that affect publicly traded partnerships. Although there are no current legislative or administrative proposals that would adversely impact publicly traded partnerships, thereThere can be no assurance that there will not be further changes to U.S. federal income tax laws or the Treasury Department’s interpretation of such lawsthe qualifying income rules in a manner that could impact our ability to qualify as a publicly traded partnership in the future.
Any modification to the U.S. federal income tax laws or interpretations thereof may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any changes or other proposals will ultimately be enacted.
In addition, there can be no assurance that there will not be any legislative, judicial or administrative changes in tax law generally that would negatively impact the value of an investment in our units. You are urged to consult with your own tax advisor with respect to the status of legislative, regulatory andor administrative developments and proposals in tax law generally and their potential effect on your investment in our units.
We have subsidiaries that are treated as corporations for U.S. federal income tax purposes and subject to corporate‑levelcorporate-level income taxes.
As of December 31, 2018,2021, we conducted substantially all of our operations of our end‑userend-user business through six subsidiaries that are treated as corporations for U.S. federal income tax purposes. These corporations primarily engage in the retail sale of gasoline and/or operatesoperate convenience stores and collect rents on personal property leased to dealers and commissioned agents at other stations. We may elect to conduct additional operations through these corporate subsidiaries in the future. These corporate subsidiaries are subject to corporate‑levelcorporate-level taxes, which reduce the cash available for distribution to us and, in turn, to common unitholders. If the IRS were to successfully assert that these corporations have more tax liability than we anticipate or legislation were enacted that increased the corporate tax rate, our cash available for distribution to common unitholders would be further reduced.
If the IRS were to contest the U.S. federal income tax positions we take, it may adversely impact the market for our common units, and the costs of any such contest would reduce our cash available for distribution to our common unitholders.
We have not requested a ruling from the IRS with respect to our treatment as a partnership for U.S. federal income tax purposes. The IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest with the IRS may materially and adversely impact the market for our common units and the price at which they trade. Moreover, the costs of any contest between us and the IRS will result in a
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reduction in our cash available for distribution to our common unitholders and thus will be borne indirectly by our common unitholders.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from us, in which case our cash available for distribution to our common unitholders might be substantially reduced and our current and former common unitholders may be required to indemnify us for any taxes (including any applicable penalties and interest) resulting from such audit adjustments that were paid on such common unitholdersunitholders’ behalf.
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes an audit adjustment to our income tax return, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us. To the extent possible under the new rules, our general partner may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a revised information statement to each common unitholder and former common unitholder with respect to an audited and adjusted return. Although our general partner may elect to have our common unitholders and former common unitholders take such audit adjustment into account and pay any resulting taxes (including applicable penalties or interest) in accordance with their interests in us during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. As a result, our current common unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such
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common unitholders did not own units in us during the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties and interest, our cash available for distribution to our common unitholders might be substantially reduced and our current and former common unitholders may be required to indemnify us for any taxes (including any applicable penalties and interest) resulting from such audit adjustments that were paid on such common unitholdersunitholders’ behalf. These rules are not applicable for tax years beginning on or prior to December 31, 2017.
Even if our common unitholders do not receive any cash distributions from us, they will be required to pay taxes on their share of our taxable income.
Because common unitholders are treated as partners to whom we allocate taxable income, which could be different in amount than the cash we distribute, common unitholders are required to pay any U.S. federal income taxes and, in some cases, state and local income taxes on their share of our taxable income even if they do not receive any cash distributions from us. For example, if we sell assets and use the proceeds to repay existing debt or fund capital expenditures, you may be allocated taxable income and gain resulting from the sale and our cash available for distribution would not increase. Similarly, taking advantage of opportunities to reduce our existing debt, such as debt exchanges, debt repurchases, or modifications of our existing debt could result in “cancellation of indebtedness income” being allocated to our common unitholders as taxable income without any increase in our cash available for distribution. Our common unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the tax liability that results from that income.
Tax gain or loss on the disposition of our common units could be more or less than expected.
If a unitholder sells common units, the unitholder will recognize a gain or loss equal to the difference between the amount realized and that unitholder’s tax basis in those common units. Because distributions in excess of a common unitholder’s allocable share of our net taxable income decrease such unitholder’s tax basis in its common units, the amount, if any, of such prior excess distributions with respect to the common units a unitholder sells will, in effect, become taxable income to a unitholder if it sells such units at a price greater than its tax basis in those units, even if the price such unitholder receives is less than its original cost. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if a unitholder sells its common units, the unitholder may incur a tax liability in excess of the amount of cash received from the sale.
A substantial portion of the amount realized from a unitholder’s sale of our common units, whether or not representing gain, may be taxed as ordinary income to such unitholder due to potential recapture items, including
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depreciation recapture. Thus, a common unitholder may recognize both ordinary income and capital loss from the sale of units if the amount realized on a sale of such units is less than such unitholder’s adjusted basis in the common units. Net capital loss may only offset capital gains and, in the case of individuals, up to $3,000 of ordinary income per year. In the taxable period in which a unitholder sells its common units, such unitholder may recognize ordinary income from our allocations of income and gain to such unitholder prior to the sale and from recapture items that generally cannot be offset by any capital loss recognized upon the sale of units.
Common unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
In general, we are entitled to a deduction for interest paid or accrued on indebtedness properly allocable to our trade or businessesbusiness during our taxable year. However, under the Tax Cuts and Jobs Act, for taxable years beginning after December 31, 2017, our deduction for “business interest” is limited to the sum of our business interest income and 30% of our “adjusted taxable income.” For the purposes of this limitation, our adjusted taxable income is computed without regard to any business interest expense or business interest income, and in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion. For taxable years beginning on or after January 1, 2022, our “adjusted taxable income” for purposes ofdepletion to the 30% limitation takes into account our deductions forextent such depreciation, amortization, andor depletion which couldis not capitalized into cost of goods sold with respect to inventory.
If our “business interest” is subject to limitation under these rules, our unitholders will be limited in their ability to deduct their share of any interest expense that has been allocated to them. As a result, in acommon unitholders may be subject to limitation on a unitholder’stheir ability to deduct interest expense andincurred by us which could negatively impact the value of
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an investment in our common units. You are urged to consult with your own tax advisor with respect to this potential limitation on the deductibility of interest expense and its impact on your investment in our common units.
Tax-exempt entities face unique tax issues from owning our common units that may result in adverse tax consequences to them.
Investment in our common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs) raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from U.S. federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. With respect to taxable years beginning after December 31, 2017, subject to the proposed aggregation rules for certain similarly situated businesses or activities issued by the Treasury Department, a tax-exempt entity with more than one unrelated trade or business (including by attribution from investment in a partnership such as ours) is required to compute the unrelated business taxable income of such tax-exempt entity separately with respect to each such trade or business (including for purposes of determining any net operating loss deduction). As a result, for years beginning after December 31, 2017, it may not be possible for tax-exempt entities to utilize losses from an investment in our partnership to offset unrelated business taxable income from another unrelated trade or business and vice versa. Tax-exempt entities should consult a tax advisor before investing in our common units.
Non-U.S. Unitholders will be subject to U.S. taxes and withholding with respect to their income and gain from owning our units.
Non-U.S. unitholders are generally taxed and subject to income tax filing requirements by the United States on income effectively connected with a U.S. trade or business (“effectively connected income”).business. Income allocated to our common unitholders and any gain from the sale of our units will generally be considered to be “effectively connected” with a U.S. trade or business. As a result, distributions to a Non-U.S.non-U.S. common unitholder will be subject to withholding at the highest applicable effective tax rate and a Non-U.S.non-U.S. unitholder who sells or otherwise disposes of a unit will also be subject to U.S. federal income tax on the gain realized from the sale or disposition of that unit.
The Tax Cuts and Jobs Act imposes a withholding obligation of 10% ofMoreover, the amount realized upon a Non-U.S. unitholder’s sale or exchangetransferee of an interest in a partnership that is engaged in a U.S. trade or business. However, duebusiness is generally required to challengeswithhold 10% of administeringthe “amount realized” by the transferor unless the transferor certifies that it is not a withholding obligationforeign person. While the determination of a partner’s “amount realized” generally includes any decrease of a partner’s share of the partnership’s liabilities, the Treasury regulations provide that the “amount realized” on a transfer of an interest in a publicly traded partnership, such as our units, will generally be the amount of gross proceeds paid to the broker effecting the applicable transfer on behalf of the transferor, and thus will be determined without regard to open market tradingany decrease in that partner’s share of a publicly traded partnership’s liabilities. The Treasury regulations and other complications,guidance from the IRS has temporarily suspendedprovide that withholding on a transfer of an interest in a publicly traded partnership will not be imposed on a transfer that occurs prior to January 1, 2023. Thereafter, the application of this withholding ruleobligation to open market transferswithhold on a transfer of interests in a publicly traded partnerships pending promulgation of regulations or other guidancepartnership that resolvesis effected through a broker is imposed on the challenges. It is not clear if or when such regulations or other guidance will be issued. Non-U.S.transferor’s broker. Current and prospective non-U.S. unitholders should consult atheir tax advisor before investingadvisors regarding the impact of these rules on an investment in our common units.
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We treat each purchaser of our common units as having the same tax benefits without regard to the common units actually purchased. The IRS may challenge this treatment, which could adversely affect the value of our common units.
Because we cannot match transferors and transferees of common units, we have adopted certain methods for allocating depreciation and amortization deductions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to the use of these methods could adversely affect the amount of tax benefits available to our unitholders. It also could affect the timing of these tax benefits or the amount of gain from any sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to a unitholder’s tax returns.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month (the “Allocation Date”), instead of on the basis of the date a particular common unit is transferred. Similarly, we generally allocate (i) certain deductions for depreciation of capital additions, (ii) gain or loss realized on a sale or other disposition
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of our assets, and (iii) in the discretion of the general partner, any other extraordinary item of income, gain, loss or deduction based upon ownership on the Allocation Date. Treasury Regulations allow a similar monthly simplifying convention, but such regulations do not specifically authorize all aspects of our proration method. If the IRS were to challenge our proration method, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders.
A unitholder whose common units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of common units) may be considered to have disposed of those common units. If so, such unitholder would no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.
Because there are no specific rules governing the U.S. federal income tax consequences of loaning a partnership interest, a unitholder whose common units are the subject of a securities loan may be considered to have disposed of the loaned units. In that case, the unitholder may no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a securities loan are urged consult a tax advisor to determine whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their common units.
We have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methodologies or the resulting allocations, which could adversely affect the value of our common units.
In determining the items of income, gain, loss and deduction allocable to our unitholders, we must routinely determine the fair market value of our assets. Although we may, from time to time, consult with professional appraisers regarding valuation matters, we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.
A successful IRS challenge to these methods or allocations could adversely affect the timing or amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain recognized from the sale of our common units, have a negative impact on the value of our common units or result in audit adjustments to our
48
unitholders’ tax returns without the benefit of additional deductions.
Unitholders may be subject to state and local taxes and return filing requirements in jurisdictions where they do not live as a result of investing in our common units.
In addition to U.S. federal income taxes, our unitholders may be subject to other taxes, including foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file foreign, state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements.
We currently own assets and conduct business in several states, some of which impose a personal income tax on individuals, corporations and other entities. As we make acquisitions or expand our businesses, we may own assets or conduct business in additional states that impose a personal income tax. It is our unitholders’ responsibility to file all U.S. federal, state, localmunicipal and non‑U.S.non-U.S. tax returns and pay any taxes due in these jurisdictions. Unitholders should consult with their own tax advisors regarding the filing of such tax returns, the payment of such taxes, and the deductibility of any taxes paid.
Treatment54
The treatment of income attributable to distributions on our Series A Preferred Unitspreferred units as guaranteed payments for the use of capital creates a different tax treatment for the holders of Series A Preferred Unitsour preferred units than the holders of our common units and such distributions mayare not be eligible for the 20% deduction for qualified publicly traded partnershipbusiness income.
The tax treatment of distributions on our SeriesA Preferred Unitspreferred units is uncertain. We will treat each of the holders of the SeriesA Preferred Unitsour preferred units as partners for tax purposes and will treat income attributable to distributions on the SeriesA Preferred Unitsour preferred units as a guaranteed paymentspayment for the use of capital that will generally be taxable to each of the holders of SeriesA Preferred Unitsour preferred units as ordinary income. Holders of our SeriesA Preferred Unitspreferred units will recognize taxable income from the accrual of such a guaranteed paymentincome (even in the absence of a contemporaneous cash distribution). Otherwise, except in the case of our liquidation, the holders of SeriesA Preferred Unitsour preferred units are generally not anticipated to share in our items of income, gain, loss or deduction, nor will we allocate any share of our nonrecourse liabilities to the holders of SeriesA Preferred Units.our preferred units. If the SeriesA Preferred Unitsdistributions on our preferred units were treated as payments on indebtedness for tax purposes, rather than as guaranteed payments for the use of capital, the distributions likely would be treated as payments of interest by us to each of the holders of SeriesA Preferred Units.our preferred units.
Although we expect that much of the income we earn is generally eligible for the 20% deduction for qualified publicly traded partnershipbusiness income, it is uncertain whetherrecently issued final Treasury Regulations provide that income attributable to a guaranteed payment for the use of capital may constitute an allocable or distributive share of such income. As a result, the guaranteed payment for use of capital received by our SeriesA Preferred Units mayis not be eligible for the 20% deduction for qualified publicly traded partnership income. As a result, income attributable to a guaranteed payment for use of capital recognized by holders of our preferred units is not eligible for the 20% deduction for qualified business income.
A holder of SeriesA Preferred Unitsour preferred units will be required to recognize gain or loss on a sale of SeriesA Preferred Unitspreferred units equal to the difference between the amount realized by such holder and such holder’s tax basis in the SeriesA Preferred Unitspreferred units sold. The amount realized generally will equal the sum of the cash and the fair market value of other property such holder receives in exchange for such SeriesA Preferred Units.preferred units. Subject to general rules requiring a blended basis among multiple partnership interests, the tax basis of a SeriesA Preferred Unitspreferred unit will generally equal the sum of the cash and the fair market value of other property paid by the holder of such SeriesA Preferred Unitspreferred unit to acquire such SeriesA Preferred Units.preferred unit. Gain or loss recognized by a holder of SeriesA Preferred Unitspreferred units on the sale or exchange of a SeriesA Preferred Unitpreferred unit held for more than one year generally will be taxable as long-term capital gain or loss. Because holders of SeriesA Preferred Unitsour preferred units will generally not be allocated a share of our items of depreciation, depletion or amortization, it is not anticipated that such holders will be required to recharacterize any portion of their gain as ordinary income as a result of the recapture rules.
Investment in the SeriesA Preferred Unitsour preferred units by tax-exempt investors, such as employee benefit plans and individual retirement accounts, and non-United States persons raises issues unique to them. The treatment of guaranteed
49
payments for the use of capital to tax-exempt investors is not certain and the income resulting from such payments may be treated as unrelated business taxable income for U.S. federal income tax purposes. Distributions to non-United States holders of SeriesA Preferred Unitsour preferred units will be subject to withholding taxes. If the amount of withholding exceeds the amount of United StatesU.S. federal income tax actually due, non-United States holders of SeriesA Preferred Unitsour preferred units may be required to file United StatesU.S. federal income tax returns in order to seek a refund of such excess.
All holders of our Series A Preferred Unitspreferred units are urged to consult a tax advisor with respect to the consequences of owning our Series A Preferred Units.preferred units.
Item 1B. Unresolved Staff Comments.
None.
55
Item 3. Legal Proceedings.Proceedings.
The information required by this item is included in Note 2223 of Notes to Consolidated Financial Statements and is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
5056
Item 5. Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Holders
Our common units trade on the New York Stock Exchange (“NYSE”) under the symbol “GLP.” At the close of business on March 4, 2019,February 22, 2022, based upon information received from our transfer agent, and brokers and nominees, we had 10,56034 holders of record of our common unitholders, including beneficial ownersunits. The number of record holders does not include common units held in street name.
Distributions of Available Cash
Common Units and General Partner Interest
We intend to make cash distributions to common unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future earnings, capital requirements, financial condition and other factors. Our credit agreement prohibits us from making cash distributions if any potential default or event of default, as defined in the credit agreement, occurs or would result from the cash distribution. The indentures governing our outstanding senior notes and our partnership agreement also limit our ability to make distributions to our common unitholders in certain circumstances.
Within 45 days after the end of each quarter, we will distribute all of our Available Cash (as defined in our partnership agreement) to common unitholders of record on the applicable record date. The amount of Available Cash is all cash on hand on the date of determination of Available Cash for the quarter, less the amount of cash reserves established by our general partner to provide for the proper conduct of our businesses, to comply with applicable law, any of our debt instruments or other agreements, or to provide funds for distributions to unitholders and our general partner for any one or more of the next four quarters.
We will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 99.33% to the common unitholders, pro rata, and 0.67% to the general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distribution is distributed to the common unitholders and the general partner based on the percentages as provided below.
As holder of the incentive distribution rights, the general partner is entitled to incentive distributions if the amount we distribute with respect to any quarter exceeds specified target levels shown below:
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| Marginal Percentage |
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| Total Quarterly Distribution |
| Interest in Distributions |
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| Target Amount |
| Unitholders |
| General Partner |
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| | | | | | | | |||||||
| | | | Marginal Percentage |
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| | Total Quarterly Distribution | | Interest in Distributions |
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| | Target Amount | | Unitholders | | General Partner |
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First Target Distribution |
| up to $0.4625 |
| 99.33 | % | 0.67 | % |
| up to $0.4625 |
| 99.33 | % | 0.67 | % |
Second Target Distribution |
| above $0.4625 up to $0.5375 |
| 86.33 | % | 13.67 | % |
| above $0.4625 up to $0.5375 |
| 86.33 | % | 13.67 | % |
Third Target Distribution |
| above $0.5375 up to $0.6625 |
| 76.33 | % | 23.67 | % |
| above $0.5375 up to $0.6625 |
| 76.33 | % | 23.67 | % |
Thereafter |
| above $0.6625 |
| 51.33 | % | 48.67 | % |
| above $0.6625 |
| 51.33 | % | 48.67 | % |
Series A Preferred Units
On August 7, 2018, we issued 2,760,000 of our9.75% SeriesA Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests (the “SeriesA Preferred UnitsUnits”) at a price of $25.00 per Series A Preferred Unit. We used the proceeds, net of underwriting discount and expenses, of $66.4million to reduce indebtedness under our credit agreement.
The Series A Preferred Units are a new class of equity security that ranks senior to the common units, the incentive distribution rights and each other class or series of our equity securities established after August 7, 2018, the
51
original issue date of the Series A Preferred Units (the “Original Issue Date”), that is not expressly made senior to or on parity with the Series A Preferred Units as to the payment of distributions and amounts payable on a liquidation event.
Distributions on the Series A Preferred Units are cumulative from August 7, 2018, the Original Issue Dateoriginal issue date of the Series A Preferred Units, and payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each
57
year, commencing on November 15, 2018 (each, a “Distribution“Series A Distribution Payment Date”), to holders of record as of the opening of business on the February 1, May 1, August 1 or November 1 next preceding the Series A Distribution Payment Date, in each case, when, as, and if declared by the General Partner out of legally available funds for such purpose. Distributions on the Series A Preferred Units will be paid out of our Available Cash with respect to the quarter ended immediately preceding the applicable Series A Distribution Payment Date.
No distribution may be declared or paid or set apart for payment on any junior securities (other than a distribution payable solely in junior securities) unless full cumulative distributions have been or contemporaneously are being paid or provided for on all outstanding Series A Preferred Units and any parity securities through the most recent respective distribution periods.
The initial distribution rate for the Series A Preferred Units from and including the Original Issue Date,original issue date, but excluding, August 15, 2023 is 9.75% per annum of the $25.00 liquidation preference per Series A Preferred Unit (equal to $2.4375 per Series A Preferred Unit per annum). On and after August 15, 2023, distributions on the Series A Preferred Units will accumulate for each distribution period at a percentage of the $25.00 liquidation preference equal to an annual floating rate of the three-month LIBOR plus a spread of 6.774% per annum.
Series B Preferred Units
On March 24, 2021, we issued 3,000,000 9.50% SeriesB Fixed Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in us (the “SeriesB Preferred Units”) at a price of $25.00 per SeriesB Preferred Unit.
Distributions on the Series B Preferred Units are cumulative from March 24, 2021, the original issue date of the Series B Original Issue Date and payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year (each, a “Series B Distribution Payment Date”), commencing on May 15, 2021, to holders of record as of the opening of business on the February 1, May 1, August 1 or November 1 next preceding the Series B Distribution Payment Date, in each case, when, as, and if declared by the General Partner out of legally available funds for such purpose. Distributions on the Series B Preferred Units will be paid out of Available Cash with respect to the quarter immediately preceding the applicable Series B Distribution Payment Date.
No distribution may be declared or paid or set apart for payment on any junior securities (other than a distribution payable solely in junior securities) unless full cumulative distributions have been or contemporaneously are being paid or provided for on all outstanding Series B Preferred Units and any parity securities through the most recent respective distribution periods.
The distribution rate for the Series B Preferred Units is 9.50% per annum of the $25.00 liquidation preference per Series B Preferred Unit (equal to $2.375 per Series B Preferred Unit per annum).
Equity Compensation Plan
The equity compensation plan information required by Item 201(d) of Regulation S‑KS-K in response to this item is incorporated by reference from Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Equity Compensation Plan Table.”
Recent Sales of Unregistered Securities
None.
58
Issuer Purchases of Equity Securities
We did not repurchase any of our common units during the quarter ended December 31, 2018.2021.
Item 6. Selected Financial Data.
The following table presents selected historical financial and operating data
59
This table should be read in conjunction with Part II, Item 7, “Management’s7. Management’s Discussion and AnalysisAnalysis of Financial Condition and Results of Operations” and the historical consolidated financial statements of Global Partners LP and the notes thereto included elsewhere in this report. In addition, this table presents non‑GAAP financial measures which we use in our businesses. These measures are not calculated or presented in accordance with generally accepted accounting principles in the United States (“GAAP”). We explain these measures and present reconciliations to the most directly comparable financial measures calculated in accordance with GAAP in Part II, Item 7, “Management’s
52
Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Key Performance Indicators.”Operations.
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| Year Ended December 31, |
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| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
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| (dollars in millions except per unit amounts) |
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Statement of Income Data: |
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Sales |
| $ | 12,672.6 |
| $ | 8,920.6 |
| $ | 8,239.6 |
| $ | 10,314.9 |
| $ | 17,269.9 |
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Cost of sales |
|
| 12,022.2 |
|
| 8,337.5 |
|
| 7,693.1 |
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| 9,717.2 |
|
| 16,725.1 |
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Gross profit |
|
| 650.4 |
|
| 583.1 |
|
| 546.5 |
|
| 597.7 |
|
| 544.8 |
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Selling, general and administrative expenses |
|
| 171.0 |
|
| 155.0 |
|
| 149.7 |
|
| 177.0 |
|
| 154.0 |
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Operating expenses |
|
| 321.1 |
|
| 283.6 |
|
| 288.5 |
|
| 290.3 |
|
| 204.1 |
|
(Gain) loss on trustee taxes |
|
| (52.6) |
|
| 16.2 |
|
| — |
|
| — |
|
| — |
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Lease exit and termination (gain) expenses |
|
| (3.5) |
|
| — |
|
| 80.7 |
|
| — |
|
| — |
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Amortization expense |
|
| 11.0 |
|
| 9.2 |
|
| 9.4 |
|
| 13.5 |
|
| 18.9 |
|
Net loss (gain) on sale and disposition of assets |
|
| 5.9 |
|
| (1.6) |
|
| 20.5 |
|
| 2.1 |
|
| 2.2 |
|
Goodwill and long-lived asset impairment |
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| 0.4 |
|
| 0.8 |
|
| 149.9 |
|
| — |
|
| — |
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Total operating costs and expenses |
|
| 453.3 |
|
| 463.3 |
|
| 698.7 |
|
| 482.9 |
|
| 379.2 |
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Operating income (loss) |
|
| 197.1 |
|
| 119.8 |
|
| (152.2) |
|
| 114.7 |
|
| 165.6 |
|
Interest expense |
|
| (89.1) |
|
| (86.2) |
|
| (86.3) |
|
| (73.3) |
|
| (47.7) |
|
Income (loss) before income tax (expense) benefit |
|
| 108.0 |
|
| 33.5 |
|
| (238.5) |
|
| 41.4 |
|
| 117.9 |
|
Income tax (expense) benefit |
|
| (5.6) |
|
| 23.6 |
|
| (0.1) |
|
| 1.9 |
|
| (0.9) |
|
Net income (loss) |
|
| 102.4 |
|
| 57.1 |
|
| (238.6) |
|
| 43.3 |
|
| 117.0 |
|
Net loss (income) attributable to noncontrolling interest (1) |
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| 1.5 |
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| 1.6 |
|
| 39.2 |
|
| 0.3 |
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| (2.3) |
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Net income (loss) attributable to Global Partners LP |
|
| 103.9 |
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| 58.8 |
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| (199.4) |
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| 43.6 |
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| 114.7 |
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Less: General partners’ interest in net income (loss) |
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| 1.0 |
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| 0.4 |
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| (1.3) |
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| 7.7 |
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| 6.0 |
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Less: Series A preferred limited partner interest in net income |
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| 2.7 |
|
| — |
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| — |
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| — |
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| — |
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Net income (loss) attributable to common limited partners |
| $ | 100.2 |
| $ | 58.4 |
| $ | (198.1) |
| $ | 35.9 |
| $ | 108.7 |
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Per Unit Data |
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Basic net income (loss) per common limited partner unit (2) |
| $ | 2.97 |
| $ | 1.74 |
| $ | (5.91) |
| $ | 1.12 |
| $ | 3.97 |
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Diluted net income (loss) per common limited partner unit (2) |
| $ | 2.95 |
| $ | 1.74 |
| $ | (5.91) |
| $ | 1.11 |
| $ | 3.95 |
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Cash distributions per common limited partner unit (3) |
| $ | 1.88 |
| $ | 1.85 |
| $ | 1.85 |
| $ | 2.74 |
| $ | 2.53 |
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Cash Flow Data: |
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Net cash provided by (used in): |
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Operating activities |
| $ | 168.9 |
| $ | 348.4 |
| $ | (119.9) |
| $ | 62.5 |
| $ | 344.9 |
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Investment activities |
| $ | (225.7) |
| $ | (61.6) |
| $ | 6.4 |
| $ | (649.7) |
| $ | (91.1) |
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Financing activities |
| $ | 50.1 |
| $ | (282.0) |
| $ | 122.4 |
| $ | 583.1 |
| $ | (257.8) |
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Other Financial Data: |
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EBITDA (4) |
| $ | 304.3 |
| $ | 225.0 |
| $ | (4.9) |
| $ | 225.7 |
| $ | 242.3 |
|
Adjusted EBITDA (4) |
| $ | 310.6 |
| $ | 224.2 |
| $ | 129.7 |
| $ | 227.8 |
| $ | 244.5 |
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Distributable cash flow (5) |
| $ | 173.7 |
| $ | 108.3 |
| $ | (121.4) |
| $ | 126.9 |
| $ | 161.2 |
|
Capital expenditures—acquisitions (6) |
| $ | 171.6 |
| $ | 38.5 |
| $ | — |
| $ | 561.2 |
| $ | — |
|
Capital expenditures—maintenance and expansion (6) |
| $ | 69.2 |
| $ | 49.8 |
| $ | 71.3 |
| $ | 92.9 |
| $ | 95.1 |
|
Operating Data: |
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|
Normal heating degree days (7) |
|
| 5,630 |
|
| 5,630 |
|
| 5,661 |
|
| 5,630 |
|
| 5,630 |
|
Actual heating degree days |
|
| 5,391 |
|
| 5,310 |
|
| 5,177 |
|
| 5,651 |
|
| 5,664 |
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Variance from normal heating degree days |
|
| (4) | % |
| (6) | % |
| (9) | % |
| 0.37 | % |
| 1 | % |
Variance from prior year actual degree days |
|
| 2 | % |
| 3 | % |
| (8) | % |
| (0.23) | % |
| 3 | % |
Total gallons sold (in millions) |
|
| 5,863 |
|
| 4,766 |
|
| 5,133 |
|
| 5,648 |
|
| 6,356 |
|
Variance in volume sold from prior year |
|
| 23 | % |
| (7) | % |
| (9) | % |
| (11) | % |
| (9) | % |
Balance Sheet Data (at period end): |
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Total assets |
| $ | 2,424.3 |
| $ | 2,320.2 |
| $ | 2,564.0 |
| $ | 2,663.7 |
| $ | 2,030.8 |
|
Long—term debt |
| $ | 1,034.5 |
| $ | 957.8 |
| $ | 1,025.9 |
| $ | 1,075.6 |
| $ | 593.9 |
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Total debt |
| $ | 1,137.8 |
| $ | 1,084.5 |
| $ | 1,300.5 |
| $ | 1,173.7 |
| $ | 594.6 |
|
Total liabilities |
| $ | 1,925.1 |
| $ | 1,925.9 |
| $ | 2,166.2 |
| $ | 1,969.7 |
| $ | 1,394.7 |
|
Partners’ equity |
| $ | 499.2 |
| $ | 394.3 |
| $ | 397.8 |
| $ | 694.0 |
| $ | 636.1 |
|
The above table reflects certain rounding conventions.
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53
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54
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations of Global Partners LP should be read in conjunction with the historical consolidated financial statements of Global Partners LP and the notes thereto included elsewhere in this report.
OverviewThis 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 Form10-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 December 31, 2020.
GeneralOverview
We are a master limited partnership formed in March 2005. We own, control or have access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the “Northeast”). We are one of the region’s largest independent owners, suppliers and operators of gasoline stations and convenience stores. As of December 31, 2018,2021, we had a portfolio of 1,5791,595 owned, leased and/or supplied gasoline stations, including 297295 directly operated convenience stores, primarily in the Northeast. We are also one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. We engage in the purchasing, selling, gathering, blending, storing and logistics of transporting petroleum and related products, including gasoline and gasoline blendstocks (such as ethanol), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, crude oil and propane and in the transportation of petroleum products and renewable fuels by rail from the mid‑continentmid-continent region of the United States and Canada.
Collectively, we sold approximately $12.3$12.7 billion of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane for the year ended December 31, 2018.2021. In addition, we had other revenues of approximately $0.4$0.5 billion for the year ended December 31, 20182021 from convenience store and prepared food sales at our directly operated stores, rental income from dealer leased and commissioned agent leased gasoline stations and from cobranding arrangements, and sundries.
We base our pricing on spot prices, fixed prices or indexed prices and routinely use the New York Mercantile Exchange (“NYMEX”), Chicago Mercantile Exchange (“CME”) and Intercontinental Exchange (“ICE”) or other counterparties to hedge the risk inherent in buying and selling commodities. Through the use of regulated exchanges or derivatives, we seek to maintain a position that is substantially balanced between purchased volumes and sales volumes or future delivery obligations.
2018 EventsOur Perspective on Global and the COVID-19 Pandemic
Series A Preferred Unit Offering—On August 7, 2018,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 issued 2,760,000 9.75% SeriesA Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests (the “SeriesA Preferred Units”) for $25.00 per SeriesA Preferred Unitoperate.
The COVID-19 pandemic resulted in an offering registered undereconomic downturn, restricted travel to, from and within the Securities Act of 1933. We usedstates in which we conduct our businesses, and in decreases in the proceeds, net of underwriting discount and expenses, of $66.4million to reduce indebtedness under our credit agreement. See Note 17 of Notes to Consolidated Financial Statementsdemand for additional information.
Acquisition from Cheshire Oil Company, LLC—On July 24, 2018, we acquired the assets of ten company-operated gasoline stations and convenience stores from New Hampshire-based Cheshire Oil Company,LLC (“Cheshire”) for approximately $33.4 million, including inventory. See Note 19 of Notes to Consolidated Financial Statements for additional information.
Acquisition from Champlain Oil Company, Inc.—On July 17, 2018, we acquired retail fuel 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 February 1, 2022, we acquired substantially all of the retail motor fuel assets in Virginia and North Carolina from Vermont-based ChamplainMiller Oil Company,Co., Inc. (“Champlain”) for approximately $138.4 million, including inventory. The acquisition included 37includes 21 company-operated gasoline stations with Jiffy Mart-brandedMiller’s Neighborhood Market convenience stores in Vermont and New Hampshire and approximately 242 fuel sites that are either owned or leased, including lessee dealer and commissioncommissioned agent locations. The transaction also includedlocations, all located in Virginia, and 34 fuel supply agreements for approximately 65 gasoline stations,only sites, primarily in Vermont and New Hampshire. See Note 19Virginia.
On January 25, 2022, we acquired substantially all of Notes to Consolidated Financial Statements for additional information.
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2017 Events
Acquisition of Gasoline and Convenience Store Assets—On October 18, 2017, we completed the acquisition of retail gasoline and convenience store assets from Honey Farms, Inc. (“Honey Farms”) in a cash transaction.Connecticut-based Consumers Petroleum of Connecticut, Incorporated. The acquisition included 11 company-operated retail sites with gasoline andincludes 26 company-owned Wheels convenience stores and 22 company-operated stand-alone convenience stores. Allrelated fuel operations located in Connecticut (after the disposition of one site pursuant to the terms of the Federal Trade Commission’s consent order) and 22 fuel-supply only sites are located in the greater Worcester, Massachusetts area. See Note 19 of NotesConnecticut and New York. The purchase price, subject to Consolidated Financial Statements for additional information. post-closing adjustments, was approximately $151.0 million. The acquisition was funded with borrowings under our revolving credit facility.
Revere Terminal Purchase and Sale of Natural Gas and Electricity Brokerage BusinessesAgreement—On February 1, 2017,November 24, 2021, we completedentered into a Purchase and Sale Agreement (the “Purchase Agreement”) with Revere MA Owner LLC (the “Revere Buyer”) pursuant to which the sale ofRevere Buyer will acquire our natural gas marketing and electricity brokerage businessesterminal located on Boston Harbor in Revere, Massachusetts (the “Revere Terminal”) for a purchase price of approximately $17.3$150.0 million subjectin cash. Pursuant to customary closing adjustments. Proceedsthe terms of the purchase agreement we entered into with the Initial Seller in 2015 to acquire the Revere Terminal, the Initial Seller will receive a portion of the net proceeds that we will receive from the sale amountedof the Revere Terminal. We estimate that proceeds to approximately $16.3 million, and we realized a gain onus from the sale of $14.2 million. Priorthe Revere Terminal after closing costs and consideration of amounts due to the sale, the resultsInitial Seller will be in excess of the natural gas marketing and electricity brokerage businesses were included in the Commercial segment.
2016 Events
Early Termination of Railcar Sublease—On December 21, 2016 (effective December 31, 2016), we voluntarily terminated early a sublease with a counterparty for 1,610 railcars that were underutilized due to unfavorable market conditions in the crude oil by rail market. Separately, we entered into a fleet management services agreement (effective January 1, 2017) with the counterparty, pursuant to which we provide railcar storage, freight, cleaning, insurance and other services on behalf of the counterparty. As a result of the sublease termination, we recognized one-time discounted lease exit and termination expenses of $80.7 million in the fourth quarter of 2016 consisting of (i) $61.7 million cash consideration, (ii) $10.7 million of accrued incremental costs relating to our obligations under the sublease, and (iii) $8.3 million associated with derecognizing accumulated prepaid rent.
The $61.7 million cash consideration represents a discount of $10.2 million from $71.9 million in railcar lease payments that we would have been obligated to pay over the next three years. The termination of the sublease eliminated lease payments related to these railcars of approximately $30.0 million in 2017 and future lease payments of approximately $29.0 million and $13.0 million in 2018 and 2019, respectively. In addition to the discounted lease termination payment, the one-time expense includes costs for future railcar storage, freight, cleaning, insurance and other services, as well as certain non-cash accounting adjustments associated with the early termination. See Note 2 of Notes to Consolidated Financial Statements for additional information.
Goodwill and Long-Lived Asset Impairment—In 2016, we recognized a goodwill impairment charge of $121.7 million related to the Wholesale reporting unit and a long-lived asset impairment charge of $28.2 million, substantially all of which is due to crude oil related activities. See Note 2 of Notes to Consolidated Financial Statements for a description of the facts and circumstances related to the impairment charges.
Sale of Gasoline Stations—On August 22, 2016, Drake Petroleum Company, Inc., a subsidiary of ours, sold to Mirabito Holdings, Inc. 30 gasoline stations and convenience stores located in New York and Pennsylvania (the “Drake Sites”) for an aggregate total cash purchase price of approximately $40.0$100.0 million. In connection with closing under the parties entered into long-term supply contracts for branded and unbranded gasoline and other petroleum products.
Sale-Leaseback Transaction—On June 29, 2016,Purchase Agreement, we sold real property assets, including the buildings, improvements and appurtenances thereto, at 30 gasoline stations and convenience stores located in Connecticut, Maine, Massachusetts, New Hampshire and Rhode Island for a purchase price of approximately $63.5 million. In connection with the sale, we enteredwill enter into a master unitary leaseleaseback agreement with the buyerRevere Buyer pursuant to which we will lease back those real property assets sold with respectkey infrastructure at the Revere Terminal, including certain tanks, dock access rights, and loading rack infrastructure, to these sites. See Note 7allow us to continue business operations at the Revere Terminal post-closing. The disposition is expected to close in the first half of Notes2022 and is subject to Consolidated Financial Statements. customary closing conditions.
Expanded Retail NetworkAmended Credit Agreement—In April 2016,On May 5, 2021, we expandedand certain of our gasoline stationsubsidiaries entered into the fifth amendment to third amended and convenience-store network in Western Massachusettsrestated credit agreement which, among other things, increased the total aggregate commitment to $1.25 billion and extended the maturity date to May 6, 2024. On November 29, 2021, we and certain of our subsidiaries agreed with the additionlenders to increase the working capital revolving credit facility in an amount equal to $100.0 million, which increased the total available commitments under the credit agreement to $1.35 billion.
Series B Preferred Unit Offering—On March 24, 2021, we issued 3,000,000 9.50% of 22 leased retail sites (“22 leased sites”). Located in the PittsfieldSeriesB Preferred Units at a price of $25.00 per SeriesB Preferred Unit. Distributions on the SeriesB Preferred Units are payable quarterly and Springfield areas, these sites were added through long-term leases.
are cumulative from and including the date of original issue at a fixed rate of 9.50% per annum of the stated liquidation preference of $25.00. We used the proceeds, net of underwriting discount and expenses, of $72.2million to reduce indebtedness under our credit agreement.
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2020 Event
2029 Notes Offering and 2023 Notes Redemption—On October 7, 2020, we and GLP Finance Corp. (the “Issuers”) issued $350.0 million aggregate principal amount of 6.875% senior notes due 2029 (the “2029 Notes”) to several initial purchasers (the “2029 Notes Initial Purchasers”) in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended (the “Securities Act”). We used the net proceeds from the offering to fund the redemption of our 7.00% senior notes due 2023 (the “2023 Notes”) and to repay a portion of the borrowings outstanding under our credit agreement. The redemption of the 2023 Notes occurred on October 23, 2020. Please read “—Liquidity and Capital Resources—Senior Notes” for additional information on the 2029 Notes.
Operating Segments
We purchase refined petroleum products, gasoline blendstocks, renewable fuels and crude oil and propane 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 the United States and Canada, transport it by rail and ship it by barge to refiners. We sell home heating oil, branded and unbranded gasoline and gasoline blendstocks, diesel, kerosene and residual oil and propane to home heating oil and propane 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‑mandatedgovernment-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 stores,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 December 31, 2018,2021, we had a portfolio of owned, leased and/or supplied gasoline stations, primarily in the
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Northeast, that consisted of the following:
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Company operated |
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Commissioned agents |
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Lessee dealers |
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Contract dealers |
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Total |
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At our company‑operatedcompany-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 andand/or other businesses that may be conducted by the commissioned agent. At dealer‑leaseddealer-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‑leaseddealer-leased gasoline stations and (ii) cobranding arrangements. We also supply gasoline to locations owned and/or leased by independent contract dealers. Additionally, we have contractual relationships with distributors in certain New England states pursuant to which we source and supply these distributors’ gasoline stations with ExxonMobil‑brandedExxonMobil-branded gasoline.
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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, and we respond to publicly‑issued requests for product proposals and quotes.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.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‑wideindustry-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‑termshort-term and in the long‑term.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. |
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| 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 |
| 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 |
| We depend upon marine, pipeline, rail and truck transportation services for a substantial portion of our logistics activities in transporting the products we sell. |
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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 |
| 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 |
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| Our heating oil and residual oil financial results |
| 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, |
● | Our gasoline, convenience store and prepared food sales could be significantly reduced by a reduction in demand due to the impact of |
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● | 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 |
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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 EPA has implemented a RFS 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 |
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| 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 |
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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 |
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) EBITDAearnings 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
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product costs. Product sales primarily include sales of unbranded and branded gasoline, distillates, residual oil, renewable fuels and crude oil, and propane, 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 primarily include the cost of acquiring the refined petroleum products renewable fuels, crude oil and propane 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‑GAAPnon-GAAP financial measure used by management and external users of our consolidated financial statements to assess our businesses.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‑GAAPnon-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‑GAAPnon-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.
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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‑interestnon-interest financing costs, professional fees and information technology expenses. Employee‑relatedEmployee-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‑relatedlabor-related expenses comprise the most significant portion of our operating expenses. TheWhile the majority of these expenses remains relatively stable, independent of the volumes through our system, butthey can fluctuate slightly 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‑long-term (multi-year) average, or normal, to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by the National Weather Service and officially archived by the National Climatic Data Center. For purposes of evaluating our results of operations, we use the normal heating degree day amount as reported by the National Weather Service at its Logan International Airport station in Boston, Massachusetts.
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Key Performance Indicators
The following table provides a summary of some of the key performance indicators that may be used to assess our results of operations. These comparisons are not necessarily indicative of future results (gallons and dollars in thousands):
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| Year Ended December 31, |
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| 2018 |
| 2017 |
| 2016 |
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Net income (loss) attributable to Global Partners LP | $ | 103,905 |
| $ | 58,752 |
| $ | (199,412) |
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| | Year Ended December 31, | | ||||||||||||||||
| | 2021 |
| 2020 |
| 2019 |
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Net income attributable to Global Partners LP | | $ | 60,796 | | $ | 102,210 | | $ | 35,867 | | |||||||||
EBITDA | $ | 304,312 |
| $ | 225,020 |
| $ | (4,851) |
| | $ | 244,459 | | $ | 285,529 | | $ | 234,374 | |
Adjusted EBITDA | $ | 310,606 |
| $ | 224,205 |
| $ | 129,782 |
| | $ | 244,333 | | $ | 287,731 | | $ | 233,666 | |
Distributable cash flow | $ | 173,688 |
| $ | 108,264 |
| $ | (121,380) |
| | $ | 120,750 | | $ | 156,392 | | $ | 95,713 | |
Wholesale Segment: |
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Volume (gallons) |
| 3,584,629 |
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| 2,654,551 |
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| 3,018,575 |
| |
| 3,667,211 | |
| 3,899,035 | |
| 4,539,335 | |
Sales |
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Gasoline and gasoline blendstocks | $ | 4,732,028 |
| $ | 2,097,811 |
| $ | 2,026,315 |
| | $ | 5,357,128 | | $ | 3,243,676 | | $ | 5,897,458 | |
Crude oil (5) |
| 109,719 |
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| 464,234 |
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| 546,541 |
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Other oils and related products (6) |
| 2,049,043 |
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| 1,725,537 |
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| 1,534,165 |
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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 | $ | 6,890,790 |
| $ | 4,287,582 |
| $ | 4,107,021 |
| | $ | 7,884,136 | | $ | 4,953,322 | | $ | 8,119,653 | |
Product margin |
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Gasoline and gasoline blendstocks | $ | 76,741 |
| $ | 82,124 |
| $ | 83,742 |
| | $ | 86,289 | | $ | 101,806 | | $ | 86,661 | |
Crude oil (5) |
| 7,159 |
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| 7,279 |
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| (13,098) |
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Other oils and related products (6) |
| 53,389 |
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| 62,799 |
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| 74,271 |
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Other oils and related products (7) | |
| 65,429 | |
| 84,927 | |
| 53,384 | | |||||||||
Crude oil (8) | |
| (12,845) | |
| (672) | |
| (13,047) | | |||||||||
Total | $ | 137,289 |
| $ | 152,202 |
| $ | 144,915 |
| | $ | 138,873 | | $ | 186,061 | | $ | 126,998 | |
Gasoline Distribution and Station Operations Segment: |
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Volume (gallons) |
| 1,632,807 |
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| 1,582,056 |
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| 1,588,163 |
| |
| 1,546,459 | |
| 1,360,252 | |
| 1,622,122 | |
Sales |
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|
|
| | | | | | | | | | |
Gasoline | $ | 4,081,498 |
| $ | 3,434,581 |
| $ | 3,071,517 |
| | $ | 4,137,969 | | $ | 2,545,616 | | $ | 3,806,892 | |
Station operations (7) |
| 427,211 |
|
| 351,876 |
|
| 371,661 |
| ||||||||||
Station operations (9) | |
| 476,405 | |
| 431,041 | |
| 466,761 | | |||||||||
Total | $ | 4,508,709 |
| $ | 3,786,457 |
| $ | 3,443,178 |
| | $ | 4,614,374 | | $ | 2,976,657 | | $ | 4,273,653 | |
Product margin |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Gasoline | $ | 373,303 |
| $ | 326,536 |
| $ | 289,420 |
| | $ | 413,756 | | $ | 398,016 | | $ | 374,550 | |
Station operations (7) |
| 203,098 |
|
| 174,986 |
|
| 183,708 |
| ||||||||||
Station operations (9) | |
| 233,881 | |
| 205,926 | |
| 225,078 | | |||||||||
Total | $ | 576,401 |
| $ | 501,522 |
| $ | 473,128 |
| | $ | 647,637 | | $ | 603,942 | | $ | 599,628 | |
Commercial Segment: |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Volume (gallons) |
| 645,393 |
|
| 529,705 |
|
| 526,486 |
| |
| 369,956 | |
| 268,989 | |
| 358,041 | |
Sales | $ | 1,273,103 |
| $ | 846,513 |
| $ | 689,440 |
| | $ | 749,767 | | $ | 391,620 | | $ | 688,424 | |
Product margin | $ | 23,611 |
| $ | 17,858 |
| $ | 24,018 |
| | $ | 15,604 | | $ | 12,279 | | $ | 24,061 | |
Combined sales and product margin: |
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Sales | $ | 12,672,602 |
| $ | 8,920,552 |
| $ | 8,239,639 |
| | $ | 13,248,277 | | $ | 8,321,599 | | $ | 13,081,730 | |
Product margin (8) | $ | 737,301 |
| $ | 671,582 |
| $ | 642,061 |
| ||||||||||
Product margin (10) | | $ | 802,114 | | $ | 802,282 | | $ | 750,687 | | |||||||||
Depreciation allocated to cost of sales |
| (86,892) |
|
| (88,530) |
|
| (95,571) |
| |
| (82,851) | |
| (81,144) | |
| (87,930) | |
Combined gross profit | $ | 650,409 |
| $ | 583,052 |
| $ | 546,490 |
| | $ | 719,263 | | $ | 721,138 | | $ | 662,757 | |
|
|
|
|
|
|
|
|
|
| ||||||||||
GDSO portfolio as of December 31, 2018, 2017 and 2016: |
|
|
|
|
|
|
|
|
| ||||||||||
| | | | | | | | | | | |||||||||
GDSO portfolio as of December 31, 2021, 2020 and 2019: | | | | | | | | | | | |||||||||
Company operated |
| 297 |
|
| 264 |
|
| 248 |
| | | 295 | | | 277 | | | 289 | |
Commissioned agents |
| 259 |
|
| 267 |
|
| 281 |
| | | 293 | | | 273 | | | 258 | |
Lessee dealers |
| 237 |
|
| 230 |
|
| 246 |
| | | 201 | | | 208 | | | 216 | |
Contract dealers |
| 786 |
|
| 694 |
|
| 683 |
| | | 806 | | | 790 | | | 788 | |
Total GDSO portfolio |
| 1,579 |
|
| 1,455 |
|
| 1,458 |
| | | 1,595 | | | 1,548 | | | 1,551 | |
6470
| | | | | | | | | | |
| | 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) | % |
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
| 2018 |
| 2017 |
| 2016 |
| |||
Weather conditions: |
|
|
|
|
|
|
|
|
|
Normal heating degree days |
| 5,630 |
|
| 5,630 |
|
| 5,661 |
|
Actual heating degree days |
| 5,391 |
|
| 5,310 |
|
| 5,177 |
|
Variance from normal heating degree days |
| (4) | % |
| (6) | % |
| (9) | % |
Variance from prior period actual heating degree days |
| 2 | % |
| 3 | % |
| (8) | % |
(1) |
| EBITDA and Adjusted EBITDA are |
(2) |
|
|
| Distributable cash flow is a |
(3) | 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 $3.1 million expense for compensation resulting from the retirement of our former chief financial 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. |
(4) |
|
(5) | Distributable cash flow for |
(6) | Segment reporting results for 2020 and |
(7) | Other oils and |
(8) |
| Crude oil consists of our crude oil sales and revenue from our logistics activities. |
(9) |
|
|
| Station operations consist of convenience |
(10) |
| Product margin is a |
6571
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 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2018 |
| 2017 |
| 2016 |
| |||
Reconciliation of net income (loss) to EBITDA and Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 102,403 |
| $ | 57,117 |
| $ | (238,623) |
|
Net loss attributable to noncontrolling interest |
|
| 1,502 |
|
| 1,635 |
|
| 39,211 |
|
Net income (loss) attributable to Global Partners LP |
|
| 103,905 |
|
| 58,752 |
|
| (199,412) |
|
Depreciation and amortization, excluding the impact of noncontrolling interest |
|
| 105,639 |
|
| 103,601 |
|
| 108,189 |
|
Interest expense, excluding the impact of noncontrolling interest |
|
| 89,145 |
|
| 86,230 |
|
| 86,319 |
|
Income tax expense (benefit) |
|
| 5,623 |
|
| (23,563) |
|
| 53 |
|
EBITDA |
|
| 304,312 |
|
| 225,020 |
|
| (4,851) |
|
Net loss (gain) on sale and disposition of assets |
|
| 5,880 |
|
| (1,624) |
|
| 20,495 |
|
Goodwill and long-lived asset impairment |
|
| 414 |
|
| 809 |
|
| 149,972 |
|
Goodwill and long-lived asset impairment attributable to noncontrolling interest |
|
| — |
|
| — |
|
| (35,834) |
|
Adjusted EBITDA (1) |
| $ | 310,606 |
| $ | 224,205 |
| $ | 129,782 |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net cash provided by (used in) operating activities to EBITDA and Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
| $ | 168,856 |
| $ | 348,442 |
| $ | (119,886) |
|
Net changes in operating assets and liabilities and certain non-cash items |
|
| 40,385 |
|
| (185,673) |
|
| (6,795) |
|
Net cash from operating activities and changes in operating assets and liabilities attributable to noncontrolling interest |
|
| 303 |
|
| (416) |
|
| 35,458 |
|
Interest expense, excluding the impact of noncontrolling interest |
|
| 89,145 |
|
| 86,230 |
|
| 86,319 |
|
Income tax expense (benefit) |
|
| 5,623 |
|
| (23,563) |
|
| 53 |
|
EBITDA |
|
| 304,312 |
|
| 225,020 |
|
| (4,851) |
|
Net loss (gain) on sale and disposition of assets |
|
| 5,880 |
|
| (1,624) |
|
| 20,495 |
|
Goodwill and long-lived asset impairment |
|
| 414 |
|
| 809 |
|
| 149,972 |
|
Goodwill and long-lived asset impairment attributable to noncontrolling interest |
|
| — |
|
| — |
|
| (35,834) |
|
Adjusted EBITDA (1) |
| $ | 310,606 |
| $ | 224,205 |
| $ | 129,782 |
|
(1) |
| 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 |
6672
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 operating assets and liabilities attributable to noncontrolling interest | |
| — | |
| 292 | |
| 54 | |
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 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2018 |
| 2017 |
| 2016 |
| |||
Reconciliation of net income (loss) to distributable cash flow: |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 102,403 |
| $ | 57,117 |
| $ | (238,623) |
|
Net loss attributable to noncontrolling interest |
|
| 1,502 |
|
| 1,635 |
|
| 39,211 |
|
Net income (loss) attributable to Global Partners LP |
|
| 103,905 |
|
| 58,752 |
|
| (199,412) |
|
Depreciation and amortization, excluding the impact of noncontrolling interest |
|
| 105,639 |
|
| 103,601 |
|
| 108,189 |
|
Amortization of deferred financing fees and senior notes discount |
|
| 6,873 |
|
| 7,089 |
|
| 7,412 |
|
Amortization of routine bank refinancing fees |
|
| (4,088) |
|
| (4,277) |
|
| (4,580) |
|
Non-cash tax reform benefit |
|
| — |
|
| (22,183) |
|
| — |
|
Maintenance capital expenditures, excluding the impact of noncontrolling interest |
|
| (38,641) |
|
| (34,718) |
|
| (32,989) |
|
Distributable cash flow (1)(2) |
|
| 173,688 |
|
| 108,264 |
|
| (121,380) |
|
Distributions to Series A preferred unitholders (3) |
|
| (2,691) |
|
| — |
|
| — |
|
Distributable cash flow after distributions to Series A preferred unitholders |
| $ | 170,997 |
| $ | 108,264 |
| $ | (121,380) |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net cash provided by (used in) operating activities to distributable cash flow: |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
| $ | 168,856 |
| $ | 348,442 |
| $ | (119,886) |
|
Net changes in operating assets and liabilities and certain non-cash items |
|
| 40,385 |
|
| (185,673) |
|
| (6,795) |
|
Net cash from operating activities and changes in operating assets and liabilities attributable to noncontrolling interest |
|
| 303 |
|
| (416) |
|
| 35,458 |
|
Amortization of deferred financing fees and senior notes discount |
|
| 6,873 |
|
| 7,089 |
|
| 7,412 |
|
Amortization of routine bank refinancing fees |
|
| (4,088) |
|
| (4,277) |
|
| (4,580) |
|
Non-cash tax reform benefit |
|
| — |
|
| (22,183) |
|
| — |
|
Maintenance capital expenditures, excluding the impact of noncontrolling interest |
|
| (38,641) |
|
| (34,718) |
|
| (32,989) |
|
Distributable cash flow (1)(2) |
|
| 173,688 |
|
| 108,264 |
|
| (121,380) |
|
Distributions to Series A preferred unitholders (3) |
|
| (2,691) |
|
| — |
|
| — |
|
Distributable cash flow after distributions to Series A preferred unitholders |
| $ | 170,997 |
| $ | 108,264 |
| $ | (121,380) |
|
(1) |
| 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 non-cash items, such as net losses on the sale and disposition of assets and goodwill and long-lived asset impairment charges. |
(2) |
| 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 $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. Distributable cash flow includes a |
(3) | Distributable cash flow for |
(4) |
| Distributions to |
67
Results of Operations for Years 2018, 2017 and 2016
Consolidated Sales
Our total sales were $12.7$13.2 billion and $8.9$8.3 billion for 20182021 and 2017,2020, respectively, an increase of $3.8$4.9 billion, or 42%59%, primarily due to an increase in prices. Our aggregate volume of product sold was 5.6 billion gallons and 5.5 billion gallons for 2021 and 2020, respectively, increasing 55 million gallons consisting of increases of 186 million gallons and 101 million gallons in our GDSO and Commercial segments, respectively, offset by a decrease of 232 million gallons in our Wholesale segment due to a decline in gasoline and gasoline blendstocks and crude oil, partially offset by an increase in other oils and related products.
Our total sales were $8.3 billion and $13.1 billion for 2020 and 2019, respectively, a decrease of $4.8 billion, or 36%, due to increasesdecreases in prices and in volume sold. Our aggregate volume of product sold was 5.85.5 billion gallons and 4.7
73
6.5 billion gallons for 20182020 and 2017,2019, respectively, an increasea decrease of 1.11.0 billion gallons.gallons in part due to the impact of the COVID-19 pandemic. The increasedecrease in volume sold includes an increasea decrease of 930640 million gallons in our Wholesale segment reflecting an increasedue to a decline in gasoline and gasoline blendstocks, partially offset by declinesincreased volume in volume sold inother oils and related products and crude oil, and distillates,decreases of 262 million gallons in our GDSO segment and increases of 11689 million gallons in our Commercial segment.
Gross Profit
Our gross profit was $719.3 million and $721.1 million for 2021 and 2020, respectively, a decrease of $1.8 million, primarily due to less favorable market conditions in our Wholesale segment and 51 million gallonsduring the second quarter of 2021. Lower fuel margin (cents per gallon) in our GDSO segment.segment also contributed to the year-over-year decrease in gross profit, partially offset by an increase in fuel volume and in station operations due to an increase in activity at our convenience stores.
Our total sales were $8.9 billiongross profit was $721.1 million and $8.2 billion$662.7 million for 20172020 and 2016,2019, respectively, an increase of $0.7$58.4 million, or 9%, primarily due to more favorable market conditions in our Wholesale segment and higher fuel margins (cents per gallon) in gasoline distribution in our GDSO segment which offset a decrease in GDSO fuel volume and a decrease in our station operations product margin. The increase in gross profit was offset by a decline in our Commercial segment largely due to a decrease in bunkering activity.
Results for Wholesale Segment
Gasoline and Gasoline Blendstocks. Sales from wholesale gasoline and gasoline blendstocks were $5.3 billion and $3.2 billion for 2021 and 2020, respectively, an increase of $2.1 billion, or 8%65%, primarily due to an increase in prices, partially offset by a decline in volume sold, primarily in our Wholesale segment. Our aggregate volume of product sold was 4.7 billion gallons and 5.1 billion gallons for 2017 and 2016, respectively, a decrease of 0.4 billion gallons. The decline in volume sold includes decreases of 364 million gallons in our Wholesale segment and 6 million gallons in our GDSO segment. We had an increase of 3 million gallons in our Commercial segment.
Gross Profit
Our gross profit was $650.4 million and $583.1 million for 2018 and 2017, respectively, an increase of $67.3 million, or 12%, primarily due to the acquisitions of Champlain and Cheshire in July 2018 and Honey Farms in October 2017 (collectively our “Recent Acquisitions”) and to higher fuel margins in our GDSO segment, largely in the fourth quarter. The increase in gross profit was partially offset by less favorable market conditions in our Wholesale segment, primarily in gasoline and distillates.
Our gross profit was $583.1 million and $546.5 million for 2017 and 2016, respectively, an increase of $36.6 million, or 7%, primarily due to improved product margins in gasoline distribution in our GDSO segment and crude oil in our Wholesale segment. The increase in gross profit was partially offset by product margin declines in other oils and related products in our Wholesale segment due to less favorable market conditions and in station operations in our GDSO segment due to the sale of sites, including the Drake Sites sold in August 2016.
Results for Wholesale Segment
Gasoline and Gasoline Blendstocks. Sales from wholesale gasoline and gasoline blendstocks were $4.7 billion and $2.1 billion for 2018 and 2017, respectively, an increase of $2.6 billion, or 126%, due to increases in prices and volume sold, primarily in gasoline.sold. Our gasoline and gasoline blendstocks product margin was $76.7$86.3 million and $82.1$101.8 million for 20182021 and 2017,2020, respectively, a decrease of $5.4$15.5 million, or 7%15%, primarily due to less favorable market conditions in gasoline, offset by improved margins in gasoline blendstocks, primarily ethanol, due to more favorable market conditions. Our product margin in 2017 benefited from weather-related supply disruptionsgasoline. During the second quarter of 2020, there was a significant recovery in the thirdsupply/demand imbalance that occurred at the end of the first quarter of 2017 that did not occur in 2018.2020 caused by the COVID-19 pandemic related demand destruction and geopolitical events. The forward product pricing curve flattened during the second quarter of 2020 which positively impacted our product margins.
Sales from wholesale gasoline and gasoline blendstocks were $2.1$3.2 billion and $2.0$5.9 billion for 20172020 and 2016,2019, respectively, an increasea decrease of approximately $0.1$2.7 billion, or 5%45%, due to an increasedecreases in prices partially offset by a decrease in volume.and volume sold. Our gasoline and gasoline blendstocks product margin was $82.1$101.8 million and $83.7$86.7 million for 20172020 and 2016,2019, respectively, an increase of $15.1 million, or 17%. During the second quarter 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 due to more favorable market conditions in gasoline in the fourth quarter of 2020 compared to the same period in 2019 which was negatively impacted due to unfavorable market conditions. In the first quarter of 2020, the COVID-19 pandemic and the price war between Saudi Arabia and Russia caused a rapid decline in prices, steepening the forward product pricing curve which negatively impacted our product margin in gasoline.
Other Oils and Related Products. Sales from other oils and related products were $2.5 billion and $1.6 billion for 2021 and 2020, respectively, an increase of $0.9 billion, or 56%, primarily due to an increase in prices. Our product margin from other oils and related products was $65.4 million and $84.9 million for 2021 and 2020, respectively, a decrease of $1.6$19.5 million, or 2%23%, primarily due to less favorable market conditions in gasoline inconditions. During the second quarter of 2017, partially offset by weather-related supply disruptions2020, there was a significant recovery in the thirdsupply/demand imbalance that occurred at the end of the first quarter of 2017.
Crude Oil. Crude oil sales2020 caused by the COVID-19 pandemic related demand destruction and logistics revenues were $0.1 billion and $0.5 billion for 2018 and 2017, respectively, a decrease of $0.4 billion, or 76%, due to a decline in volume sold as crude by rail differentials continued to be challenged. Our crude oilgeopolitical events. The forward product margin was $7.2 million and $7.3 million for 2018 and 2017, respectively, a decrease of $0.1 million, or 1%, primarily due to lower contract revenue, partially offset by lower pipeline related expense, lower railcar lease and related expenses and lower terminal lease expense associated withpricing curve flattened during the expiration of a terminal lease in the fourthsecond quarter of 2017. Our product margin for 2017 was2020 which positively impacted by $43.2 million in
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revenue recognized related to a take-or-pay contract with one particular customer compared to $21.6 million in revenue recognized in 2018 due to the expiration of that contract in June 2018. Ourour product margin for 2017 was negatively impacted by a $13.1 million expense associated with the acceleration and corresponding termination of a contractual obligation under a pipeline connection agreement with Tesoro related to the Beulah, North Dakota facility.margins.
Crude oil sales and logistics revenues were approximately $0.5 billion for each of 2017 and 2016, decreasing by $82.3 million, or 15%, due to a decline in volume sold as crude oil did not discount sufficiently to make rail transport to the East Coast competitive with imports. Our crude oil product margin was $7.3 million and negative $13.1 million for 2017 and 2016, respectively, an increase of $20.4 million, or 155%. Our crude oil product margin for 2017 was positively impacted by $43.2 million in revenue as compared to $28.0 million in 2016 related to the absence of logistics nominations from one particular contract customer, and a $34.4 million decrease in railcar lease expense to $11.3 million as a result of our early termination of a sublease in December 2016. Our crude oil product margin for 2017 was negatively impacted by a $13.1 million expense associated with the acceleration and corresponding termination of a contractual obligation under a pipeline connection agreement with Tesoro related to the Beulah, North Dakota facility and by less volume through our system.
Other Oils and Related Products. Sales from other oils and related products (primarily distillates and residual oiloil) were $1.6 billion and propane) were $2.1 billion for 2020 and $1.72019, respectively, a decrease of $0.5 billion, for 2018 and 2017, respectively, increasing by $323.5 million, or 19%24%, in part due to an increasea decline in prices, partially offset by a declinean increase in distillate volume sold. Our product margin from other oils and related products was $84.9 million and $53.4 million and $62.8for 2020 and 2019, respectively, an increase of $31.5 million, or 59%. During the second quarter
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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 Saudi Arabia and Russia caused a rapid decline in prices, steepening the forward product pricing curve, which negatively impacted our product margins.
Crude Oil. Crude oil sales and logistics revenues were $61.8 million and $84.0 million for 20182021 and 2017,2020, respectively, a decrease of $9.4$22.2 million, or 15%26%, primarily due to a decrease in volume sold. Our crude oil product margin was ($12.8 million) and ($0.7 million) for 2021 and 2020, respectively, a decrease of $12.1 million, due to less favorable market conditions in distillates in the first and third quarters of 2018, offset by improved margins in distillates in the fourth quarter.conditions. Our crude oil product margin in other oils2020 benefitted from more favorable market conditions, largely in the second quarter including the flattening of the forward product pricing curve.
Crude oil sales and related productslogistics revenues were $84.0 million and $96.4 million for both 20182020 and 2017 were negatively impacted due to warmer than normal temperatures.
Sales from other oils and related products were $1.7 billion and $1.5 billion for 2017 and 2016,2019, respectively, an increasea decrease of $0.2 billion,$12.4 million, or 13%, primarily due to an increasea decrease in prices, partially offset by a decreasean increase in volume.volume sold. Our crude oil product margin from other oilswas ($0.7 million) and related products was $62.8 million($13.0 million) for 2020 and $74.3 million for 2017 and 2016,2019, respectively, a decreasean increase of $11.5$12.3 million, or 15%. Our product margin for 2017 was negatively impacted95%, primarily due to lessmore favorable market conditions duringlargely in the second and fourth quartersquarter including the flattening of 2017.the forward product pricing curve.
Results for Gasoline Distribution and Station Operations Segment
Gasoline Distribution. Sales from gasoline distribution were $4.1 billion and $3.4$2.5 billion for 20182021 and 2017,2020, respectively, an increase of $0.7$1.6 billion, or 19%64%, due to increases in prices and volume sold. Our product margin from gasoline distribution was $413.7 million and $398.0 million for 2021 and 2020, respectively, an increase of $15.7 million, or 4%, primarily due to an increase in prices for most of 2018 and to an increase in volume sold, due to our Recent Acquisitions.partially offset by lower fuel margins (cents per gallon). Our product margin from gasoline distributionfor 2021 was $373.3 million and $326.5 million for 2018 and 2017, respectively, an increase of $46.8 million, or 14%, primarily due to higher fuel marginsnegatively impacted as wholesale gasoline prices declinedrose during the fourth quarter of 2018 and to our Recent Acquisitions. Our product margin for 2018 was negatively impacted by rising wholesale gasoline prices during the first six monthsmost of the year. Rising wholesale gasoline prices typically compress our gasoline product margin, the extent of which depends on the magnitude and decliningduration of that rise. In contrast, for 2020, wholesale gasoline prices typicallydeclined, primarily in March of 2020 due to the COVID-19 pandemic and geopolitical events, which improved our product margin.
Sales from gasoline distribution were $2.5 billion and $3.8 billion for 2020 and 2019, respectively, a decrease of $1.3 billion, or 34%, due to decreases in prices and volume sold largely due to the impact of the COVID-19 pandemic. Our product margin from gasoline distribution was $398.0 million and $374.5 million for 2020 and 2019, respectively, an increase of $23.5 million, or 6%, primarily due to higher fuel margins (cents per gallon) which more than offset the decline in volume sold. Our product margin for 2020 benefitted from declining wholesale prices in the first quarter of 2020, primarily in March due to the COVID-19 pandemic and geopolitical events. Declining wholesale gasoline prices can improve our gasoline distribution product margin, the extent of which depends on the magnitude and duration.duration of the decline.
Sales from gasoline distribution were $3.4 billion and $3.1 billion for 2017 and 2016, respectively, an increase of $0.3 billion, or 10%, due to an increase in prices. Our product margin from gasoline distribution was $326.5 million and $289.4 million for 2017 and 2016, respectively, an increase of $37.1 million, or 13%. The increase in our gasoline product margin was primarily due to declining wholesale gasoline prices during the second, third and fourth quarters of 2017.
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 $0.4 billion$476.4 million and $431.0 million for each2021 and 2020, respectively, an increase of 2018 and 2017, increasing by $75.3$45.4 million, or 21%10%. Our product margin from station operations was $203.1$233.9 million and $175.0$205.9 million for 20182021 and 2017,2020, respectively, an increase of $28.1$28.0 million, or 16%14%. The increases in sales and product margin are primarily due to increases in activity at our Recent Acquisitions, partially offset byconvenience stores, including the
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sale of non-strategic sites.sundries.
Revenues from our station operations were $0.4 billion$431.0 million and $466.7 million for each2020 and 2019, respectively, a decrease of 2017 and 2016, decreasing by $19.8$35.7 million, or 5%8%. Our product margin from station operations was $175.0$205.9 million and $183.7$225.1 million for 20172020 and 2016,2019, respectively, a decrease of $8.7$19.2 million, or 5%. The decreases in sales and product margin in 2017 are primarily due to the sale of sites, including the Drake Sites sold in August 2016, partially offset by the addition of leased company operated sites in April 2016 and the acquisition of Honey Farms in October 2017.
Results for Commercial Segment
Our commercial sales were $1.3 billion and $0.8 billion for 2018 and 2017, respectively, increasing by $426.6 million, or 50%, due to increases in prices and in volume sold. Our commercial product margin was $23.6 million and $17.9 million for 2018 and 2017, respectively, an increase of $5.7 million, or 32%, primarily due to an increase in bunkering activity.
Our commercial sales were $0.8 billion and $0.7 billion for 2017 and 2016, respectively, increasing by $157.1 million, or 23%, primarily due to higher prices. Our commercial product margin was $17.9 million and $24.0 million for 2017 and 2016, respectively, a decrease of $6.1 million, or 25%9%. The decreases in sales and product margin are primarily due to less activity at our convenience stores, primarily due to the saleimpact of our natural gas marketingthe COVID-19 pandemic.
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Results for Commercial Segment
Our commercial sales were $0.7 billion and electricity brokerage businesses in February 2017 sales.
Selling, General$0.4 billion for 2021 and Administrative Expenses
SG&A expenses were $171.0 million and $155.0 million for 2018 and 2017,2020, respectively, an increase of $16.0 million, or 10%, including$0.3 billion due to increases of $4.6 million in incentive compensation, $3.2 million in acquisition costs, $2.1 million in wagesprices and benefits, $1.2 million in license fees, $1.1 million in depreciation, $0.9 million in bad debt expense and $2.9 million in various SG&A expenses. The increase in acquisitions costs consists of $3.9 million incurred in 2018 related to Champlain and Cheshire compared to $0.7 million incurred in 2017 related to Honey Farms.
SG&A expenses were $155.0volume sold. Our commercial product margin was $15.6 million and $149.7$12.3 million for 20172021 and 2016,2020, respectively, an increase of $5.3$3.3 million, or 4%, including increases of $5.2 million in incentive compensation and $2.4 million in professional fees. In addition, during 2017, we incurred $1.1 million for certain costs in connection with a compensation funding agreement with our general partner (see Note 16 of Notes to Consolidated Financial Statements). The increase in SG&A expenses was offset, in part, by decreases of $0.9 million in bad debt expense and $0.6 million in salaries and wages, as well as a decline of $1.9 million in severance charges incurred primarily in 2016 related to a reduction in our workforce.
Operating Expenses
Operating expenses were $321.1 million and $283.6 million for 2018 and 2017, respectively, an increase of $37.5 million, or 13%27%, primarily due to an increase in volume sold and improved margins.
Our commercial sales were $0.4 billion and $0.7 billion for 2020 and 2019, respectively, a decrease of $35.5$0.3 billion, or 43%, due to decreases in prices and volume sold. Our commercial product margin was $12.3 million and $24.1 million for 2020 and 2019, respectively, a decrease of $11.8 million, or 49%, largely due to a decrease in bunkering activity.
Selling, General and Administrative Expenses
SG&A expenses were $212.9 million and $192.5 million for 2021 and 2020, respectively, an increase of $20.4 million, or 11%, consisting of a $6.6 million expense for compensation and benefits resulting from the passing of our general counsel and a $3.1 million expense for compensation resulting from the retirement of our former chief financial officer in recognition of service and increases of $9.6 million in wages and benefits, $2.5 million in acquisition costs and $4.2 million in various other SG&A expenses, offset by a decrease of $5.6 million in accrued discretionary incentive compensation and. 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.
Operating Expenses
Operating expenses were $353.6 million and $323.3 million for 2021 and 2020, respectively, an increase of $30.3 million, or 9%, including an increase of $28.3 million associated with our GDSO operations, primarily due largely to our Recent Acquisitions and to increases inincreased credit card fees partially offset by a decrease in expenses duerelated to the sale of sites.increases in volume and price, higher rent expense and higher salary expense due in part to greater activity at our stores. Operating expenses associated with our terminal operations also increased by $2.0 million.
Operating expenses were $283.6 million and $288.5 million for 2017 and 2016, respectively, a decrease of $4.9 million, or 2%. Operating expenses decreased by $2.6 million associated with our GDSO operations due, in part, to the sale of sites, including the Drake Sites sold in August 2016, partially offset by increases in credit card fees due to higher wholesale gasoline prices and in rent expense associated with the addition of leased sites, and the Honey Farms acquisition in October 2017. Operating expenses also decreased by $2.5 million at our Basin Transload facilities in North Dakota due to less activity. In addition, in 2016, we incurred $3.1 million in costs associated with cleaning tanks and related infrastructure at our Oregon facility in order to convert the facility to ethanol transloading. The decrease in operating expenses was offset by an increase of $3.3 million associated with our terminal operations.
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Gain (loss) on Trustee Taxes
In 2018, we recognized a one-time gain of approximately $52.6 million as a result of the extinguishment of a contingent liability related to the Volumetric Ethanol Excise Tax Credit, which tax credit program expired in 2011. Based upon the significant passage of time from that 2011 expiration date, including underlying statutes of limitation, as of January 31, 2018 we determined that the liability was no longer required.
In 2017, we recognized a loss on trustee taxes of $16.2 million related to an administratively closed New York State tax audit of our fuel and sales tax returns for the periods between December 2008 through August 2013.
See Note 2 of Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies—Trustee Taxes” for additional information.
Lease Exit and Termination Gain (Expenses)
In 2018, we were released from certain of our obligations to provide railcar storage, freight, insurance and other services for railcars under a fleet management services agreement associated with our 2016 voluntary termination of a railcar sublease. The release of certain of those obligations resulted in a $3.5 million reduction of the remaining accrued incremental costs.
In 2016, the lease exit and termination expenses of $80.7 million represent a one-time discounted lease termination expense related to the early termination of a sublease for 1,610 railcars leased from a third party.
See Note 2 of Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies—Leases” for additional information.
Amortization Expense
Amortization expense related to our intangible assets was $11.0 million, $9.2$10.7 million and $9.4$10.8 million for 2018, 20172021 and 2016,2020, respectively. The increases of $1.8 million in 2018 compared to 2017 was primarily due to the intangibles acquired in the Recent Acquisitions.
Net Gain (Loss) Gain on Sale and Disposition of Assets
We had net lossesNet gain (loss) on the sale and disposition of assets of ($5.9 million), ($12.5 million)was $0.5 million and ($20.50.3 million) for 2018, 20172021 and 2016,2020, respectively, primarily due to the sale of GDSO sites. Included in the net lossgain (loss) on sale and disposition of assets is approximately $3.9 million, $4.0$0.6 million and $17.9 $0.9 million for 2018, 20172021 and 2016,2020, respectively, of goodwill derecognized as part of the site divestitures. For 2017, we recorded a $14.2 million gain associated with the sale of our natural gas marketing and electricity brokerage businesses in February 2017.
See Note 6 of Notes to Consolidated Financial Statements for additional information.
Goodwill and Long-Lived Asset Impairment
In 2018 and 2017,2021, we recognized a long-lived assetan impairment charge primarily relating to certain developmental assets for raze and rebuilds in the amount of $0.4 million and $0.8 million, respectively,which was allocated to the GDSO segment.
In 2020, we recognized an impairment charge relating to long-livedcertain right-of-use assets used at certain gasoline stations and convenience stores associated with our GDSO segment. In 2016, we recognized a goodwill impairment chargein the amount of $121.7$1.9 million, relatedof which $1.7 million was allocated to the Wholesale reporting unitsegment and a long-lived asset impairment charge of $28.2$0.2 million substantially all of which is due to crude oil related activities. See Note 2 of Notes to Consolidated Financial Statements for a description of the facts and circumstances relatedwas allocated to the impairment charges.GDSO segment.
Interest Expense
Interest expense was $89.1$80.1 million and $86.2$83.5 million for 20182021 and 2017, respectively, an increase of
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$2.9 million, or 3%, primarily due to higher average balances on our credit facilities for 2018, in part due to the acquisitions of Champlain and Cheshire, an increase in inventory attributable to both volume and price, and an increase in interest rates for 2018 compared to 2017.
Interest expense was $86.2 million and $86.3 million for 2017 and 2016,2020, respectively, a decrease of $0.1
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$3.4 million, primarilyor 4%, due in part to lower average balances on our revolving credit facilitiesfacility and to lower interest rates, due to the May 2016 expiration of our interest rate swap, partially offset by a full year$0.4 million write-off of deferred financing fees associated with the amendment to our credit agreement in May 2021.
Loss on Early Extinguishment of Debt
In 2020 as a result of the redemption of the 2023 Notes, we recorded a $7.2 million loss from early extinguishment of debt, consisting of a $5.3 million cash call premium and a $1.9 million non-cash write-off of remaining unamortized deferred financing obligation recognized in connection with our sale-leaseback transaction entered into in June 2016.fees.
Income Tax (Expense) Benefit
Income tax (expense) benefit was ($5.61.3 million), $23.6 and $0.1 million for 2021 and ($0.1 million) for 2018, 2017 and 2016, respectively. The income tax (expense) benefit recognized primarily2020, respectively, which reflects the income tax (expense) benefitexpense (benefit) from the operating results of GMG, which is a taxable entity for federal and state income tax purposes. TheFor 2020, the income tax benefit consists of an income tax benefit of $6.3 million (discussed below) offset by an income tax expense of ($6.2 million).
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted and signed into law. The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act includes the temporary removal of certain limitations on the utilization of net operating losses, permitting the carryback of net operating losses generated in 2017 was primarily due2018, 2019 or 2020 to the impact of the enactment of the Tax Cuts and Jobs Act in December 2017 (“the Act”).five preceding taxable years. As a result, we recognized a benefit of the enactment of this law, we remeasured certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, resulting in a decrease to our net deferred tax liability of $22.2$6.3 million in the fourth quarter of 2017, which was recorded based on provisional amounts. As of December 31, 2018, we completed our accounting for all of the tax effects of the enactment of the Act, including the effects on our existing deferred tax balances and one-time transition tax. There were no material adjustments to the provisional tax expense estimate that was previously recorded related to the Act. See Notes 2CARES Act net operating loss carryback provisions for 2020. On January 15, 2021, we received cash refunds totaling $15.8 million associated with the carryback of losses generated in 2018 with respect to the 2016 and 12 of Notes to Consolidated Financial Statements for additional information on income taxes.2017 tax years.
Net Loss Attributable to Noncontrolling Interest
In February 2013, we acquired a 60% membership interest in Basin Transload, LLC (“Basin Transload”). In connection with the terms of an agreement between us and the minority members of Basin Transload, on September 29, 2020, we acquired the minority members’ collective 40% interest in Basin Transload. The net loss income attributable to noncontrolling interest was $1.5 million, $1.6 million and $39.2$0.5 million for 2018, 2017 and 2016, respectively,2020 which represents the 40% noncontrolling ownership of the net loss reported. The noncontrolling interest for 2016 includes a $35.8 million goodwill and long-lived asset impairment.
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 $292.2$225.5 million and $209.5$283.9 million at December 31, 20182021 and 2017,2020, respectively, an increasea decrease of $82.7 million,$58.4 million. Changes in part due to an increasecurrent assets and current liabilities decreasing our working capital primarily include increases of $35.7 million in inventories resulting from an increase in inventory volume and decreases of $67.7 million in trustee taxes payable and $23.4$170.3 million in the current portion of our working capital revolving credit facility which represents the amount we expectand $145.4 million in accounts payable, primarily due to pay down during the course of the year (see Note 7 of Notes to Consolidated Financial Statements).higher prices. The decrease in trustee taxes payable was largely attributable to the $52.6 million extinguishment of a contingent liability related to the Volumetric Ethanol Excise Tax Credit and the settlement of a trustee tax loss recognized in the fourth quarter of 2017 (see Note 2 of Notes to Consolidated Financial Statements). The increase in working capital was partially offset by a decreaseincreases of $82.5$183.9 million in accounts receivable and $125.1 million in inventories, also primarily due largely to the take-or-pay receivable with one particular crude oil contract customer in 2017.
higher prices.
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Cash Distributions
Common Units
During 2018,2021, 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 | | $ |
|
| Fourth quarter | |
May | | $ |
|
| First quarter | |
August | | $ |
|
| Second quarter | |
November | | $ |
|
| Third quarter | |
In addition, on January 28, 2019,25, 2022, the board of directors of our general partner declared a quarterly cash distribution of $0.50$0.5850 per unit ($2.002.34 per unit on an annualized basis) on all of our outstanding common units for the period from October 1, 20182021 through December 31, 20182021 to our common unitholders of record as of the close of business February 8, 2019. This distribution resulted in our reaching our second target level distribution for the quarter ended December 31, 2018.2022. On February 14, 2019,2022, we paid the total cash distribution of approximately $17.3$20.9 million.
Series A Preferred Units
On November 15, 2018,During 2021, we paid athe following cash distributiondistributions to holders of the Series A Preferred Units in the total amount of $1.8 million covering the period from August 7, 2018 (the issuance date of the Series A Preferred Units) through November 14, 2018. 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 January 22, 2019,18, 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 ourthe Series A Preferred Units for the period from November 15, 20182021 through February 14, 20192022 to our preferred unitholders of record as of the opening of business on February 1, 2019.2022. On February 15, 2019,2022, we paid the total cash distribution of approximately $1.7 million.
Series B Preferred Units
On May 17, 2021, we paid the initial quarterly cash distribution of $0.3365 per unit on the Series B Preferred Units, covering the period from March 24, 2021 (the issuance date of the Series B Preferred Units) through May 14, 2021, totaling approximately $1.0 million. On August 16, 2021, we paid the quarterly cash distribution of $0.59375 per unit covering the period from May 15, 2021 through August 14, 2021, totaling approximately $1.8 million. On November 15, 2021, we paid the quarterly cash distribution of $0.59375 per unit covering the period from August 15, 2021 through November 14, 2021, totaling approximately $1.8 million.
In addition, on January 18, 2022, the board of directors of our general partner declared a quarterly cash distribution of $0.59375 per unit ($2.375 per unit on an annualized basis) on the Series B Preferred Units for the period from November 15, 2021 through February 14, 2022 to holders of record as of the opening of business on February 1, 2022. On February 15, 2022, we paid the total cash distribution of approximately $1.8 million.
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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 December 31, 20182021 were as follows (in thousands):
| | | | | | | | | | |
| | Payments Due by Period | | |||||||
Contractual Obligations | | Next 12 Months | | Beyond 12 Months | | Total |
| |||
Credit facility obligations (1) | | $ | 214,328 | | $ | 198,497 | | $ | 412,825 | |
Senior notes obligations (2) | |
| 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 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payments Due by Period |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| 2023 and |
|
|
| |||
Contractual Obligations |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| Thereafter |
| Total |
| ||||||
Credit facility obligations (1) |
| $ | 123,129 |
| $ | 377,715 |
| $ | — |
| $ | — |
| $ | — |
| $ | 500,844 |
|
Senior notes obligations (2) |
|
| 44,438 |
|
| 44,438 |
|
| 44,438 |
|
| 407,719 |
|
| 310,500 |
|
| 851,533 |
|
Operating lease obligations (3) |
|
| 100,262 |
|
| 69,312 |
|
| 59,384 |
|
| 46,415 |
|
| 135,079 |
|
| 410,452 |
|
Other long-term liabilities (4) |
|
| 29,227 |
|
| 26,418 |
|
| 24,078 |
|
| 20,826 |
|
| 60,315 |
|
| 160,864 |
|
Financing obligations (5) |
|
| 14,769 |
|
| 15,094 |
|
| 15,426 |
|
| 15,766 |
|
| 121,177 |
|
| 182,232 |
|
Total |
| $ | 311,825 |
| $ | 532,977 |
| $ | 143,326 |
| $ | 490,726 |
| $ | 627,071 |
| $ | 2,105,925 |
|
(1) |
| Includes principal and interest on our working capital revolving credit facility and our revolving credit facility at December 31, |
(2) |
| Includes principal and interest on our senior notes. No principal payments are required prior to maturity. |
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(3) |
| Includes operating lease obligations related to leases for office space and computer equipment, land, |
(4) |
| Includes amounts related to our |
(5) |
| Includes lease rental payments in connection with (i) the acquisition of Capitol Petroleum Group (“Capitol”) related to properties previously sold by Capitol within two sale-leaseback transactions; and (ii) the sale of real property assets |
See Note 103 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 and sublease information related to certain lease agreements.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 $38.6 million, $34.7$43.2 million and $33.0$47.0 million in maintenance capital expenditures for the years ended December 31, 2018, 20172021 and 2016,2020, respectively, which are included in capital expenditures in the accompanying consolidated statements of cash flows, of which approximately $33.6 million, $27.9$38.5 million and $25.7$37.3 million for 2018, 20172021 and 2016,2020, respectively, are related to our investments in our gasoline stations.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‑industrynew-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 $175.7 million, $29.2$58.5 million and $38.3$29.3 million in
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expansion capital expenditures, including acquisitions, for the years ended December 31, 2018, 20172021 and 2016, respectively.2020, respectively, primarily related to investments in our gasoline station business.
In 2018,2021, the $175.7$58.5 million in expansion capital expenditures included approximately $145.1$53.8 million, in propertypart to raze and equipment associated with the acquisitions of Cheshirerebuilds, expansion and Champlain. In addition, we had $30.6improvements at retail gasoline stations, new leased sites and new-to-industry sites and $4.7 million in other expansion capital expenditures, primarily related to investments inat our gasoline stations, including, in part, raze and rebuilds and new-to-industry sites.terminals.
In 2017,2020, the $29.2$29.3 million in expansion capital expenditures included approximately $14.1 million in property and equipment associated with the acquisition of Honey Farms. In addition, we had $15.1 million in expansion capital expenditures which consists of $8.7$23.7 million in raze and rebuilds, expansion and improvements at retail gasoline stations and new-to-industry sites and $6.4$5.6 million in other expansion capital expenditures, primarily related to investments inat our terminals and information technology and computer equipment.
In 2016, the $38.3 million in expansion capital expenditures included approximately (i) $25.4 million in raze and rebuilds, expansion and improvements at retail gasoline stations and new-to-industry sites, and includes $5.7 million related to the addition of 22 leased sites in April 2016; (ii) $7.9 million in costs associated with our terminal assets, including $7.5 million in dock and infrastructure expansion at our Oregon facility, and (iii) $5.0 million in other
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expansion capital expenditures, primarily related to investments in information technology and computer equipment.projects.
We currently expect maintenance capital expenditures of approximately $40.0$45.0 million to $50.0$55.0 million and expansion capital expenditures, excluding acquisitions, of approximately $40.0$50.0 million to $50.0$60.0 million in 2019,2022, 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, thatincluding 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 December 31 (in thousands):
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| 2018 |
| 2017 |
| 2016 |
| |||
Net cash provided by (used in) operating activities |
| $ | 168,856 |
| $ | 348,442 |
| $ | (119,886) |
|
Net cash (used in) provided by investing activities |
| $ | (225,720) |
| $ | (61,644) |
| $ | 6,447 |
|
Net cash provided by (used in) financing activities |
| $ | 50,127 |
| $ | (281,968) |
| $ | 122,351 |
|
| | | | | | | |
| | 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 | | $ | 65,967 | | $ | (245,126) | |
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 $168.9$50.2 million and $348.4$312.5 million for 20182021 and 2017,2020, respectively, for a year-over-year decrease in cash flow from operating activities of $179.5$262.3 million. For 2018, cash flow from operating activities was not impacted by the non-cash gain of $52.6 million as a result of the extinguishment of a contingent liability related to the Volumetric Ethanol Excise Tax Credit. This gain was included in
Except for net income, and offset by the corresponding decrease in the liability which had historically been included in trustee taxes (see Note 2 of Notes to Consolidated Financial Statements).
Net cash provided by operating activities was $348.4 million for 2017 compared to net cash used in operating activities of $119.9 million for 2016, for a year‑over‑year increase in cash flows from operating activities of $468.3 million.
The primary drivers of the changes in operating activities include the following for the years ended December 31 (in thousands):
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|
| 2018 |
| 2017 |
| Change |
| 2017 |
| 2016 |
| Change |
| ||||||
Decrease (increase) in accounts receivable |
| $ | 81,898 |
| $ | 3,886 |
| $ | 78,012 |
| $ | 3,886 |
| $ | (110,237) |
| $ | 114,123 |
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(Increase) decrease in inventories |
| $ | (29,778) |
| $ | 173,167 |
| $ | (202,945) |
| $ | 173,167 |
| $ | (135,888) |
| $ | 309,055 |
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(Decrease) increase in accounts payable |
| $ | (4,433) |
| $ | (6,850) |
| $ | 2,417 |
| $ | (6,850) |
| $ | 17,410 |
| $ | (24,260) |
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| | | | | | | |
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| 2021 |
| 2020 |
| ||
(Increase) decrease in accounts receivable | | $ | (183,826) | | $ | 185,168 | |
(Increase) decrease in inventories | | $ | (123,889) | | $ | 65,588 | |
Increase (decrease) in accounts payable | | $ | 145,423 | | $ | (165,513) | |
In 2018, the decrease in accounts receivable was due largely to the take-or-pay receivable with one particular crude oil contract customer at December 31, 2017 that was not recognized at December 31, 2018. The increase in inventories was due to higher inventory volume. The decrease in operating cash flow was also impacted by the year-over-year change in derivatives of $34.1 million due to market direction and in trustee taxes of $24.2 million. The change in trustee taxes in 2017 includes the $16.2 million payment related to an administratively closed New York State tax audit of our fuel and sales tax returns for the periods between December 2008 through August 2013.
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In 2017, the decrease in inventories is due to reduced inventory volume, in part due to a change in market structure and to lower crude oil volume as compared to an increase in inventories in 2016 primarily due to higher prices. Accounts receivable decreased slightly in 2017 as compared to a $110.2 million increase in 2016 which was primarily due to higher prices and an increase in the take-or-pay receivable with one particular crude oil contract customer. The increase in cash flows from operating activities also reflects the period over period increase in net income which in part reflects the $80.7 million lease exit and termination expenses incurred in 2016.
In 2016,2021, the increases in accounts receivable, inventories and accounts payable are primarilylargely due to higher prices. An increase in the take-or-pay receivable with one particular crude oil contract customer also contributed to the increase in prices.
In 2020, the decreases in accounts receivable. The $182.4 million decrease in cash flow from operating activities also reflectsreceivable, inventories and accounts payable are largely due to the decrease
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in net income which, in part, reflectsprices, primarily caused by the $80.7 million lease exitCOVID-19 pandemic and termination expenses and the decline in crude oil product margin due to tight rail differentials. The change in derivatives year over year provided funds of $49.1 million.geopolitical events.
Investing Activities
Net cash used in investing activities was $225.7$115.1 million for 20182021 and included $138.2 million and $33.4$58.5 million in cash used to fund the acquisitions of Champlain and Cheshire, respectively, including inventory, $38.6expansion capital expenditures, $43.2 million in maintenance capital expenditures, $30.6$18.0 million in expansion capital expendituresacquisitions, primarily related to company-operated gasoline stations and $3.3convenience stores, and $1.7 million in seller note issuances offset by $18.4 million in proceeds from the sale of property and equipment. The seller note issuanceswhich represent notes we received from buyers in connection with the sale of certain of our gasoline stations.
Net cash used in investing activities was $61.6 million for 2017 and included $38.5 million in cash to fund the acquisition of Honey Farms, including inventory, $34.7 million in maintenance capital expenditures, $15.1 million in expansion capital expenditures and $6.0 million in seller note issuances, offset by $32.7 $6.3 million in proceeds from the sale of property and equipment ($16.3 million from the sale of our natural gas marketing and electricity brokerage businesses, less $0.5 million in related transaction costs, and $16.9 million primarily from the sales of GDSO sites).equipment.
Net cash provided byused in investing activities was $6.4$69.7 million for 20162020 and included $77.7$47.0 million in maintenance capital expenditures, $29.3 million in expansion capital expenditures and $1.6 million in seller note issuances, offset by $8.2 million in proceeds from the sale of property and equipment, primarily associated with the sale of the Drake Sites, the periodic divestiture of gasoline stations and the strategic asset divestiture program, offset by $38.3 million in expansion capital expenditures and $33.0 million in maintenance capital expenditures.equipment.
Please read “—Capital Expenditures” for a discussion of our expansion capital expenditures for the years ended December 31, 2018, 20172021 and 2016.2020.
Financing Activities
Net cash provided by financing activities was $50.1$66.0 million for 20182021 and included $66.4$170.3 million in net borrowing 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 SeriesAB Preferred Units $26.6 million in net borrowings from our revolving credit facility and $24.0 million in borrowings from our working capitalwhich were used to pay down the revolving credit facility, offset by $66.0$91.9 million in cash distributions to our limited partners (preferred and common unitholders) and our general partner, $78.6 million in net payments on our revolving credit facility, $3.8 million in the repurchase of common units pursuant to our repurchase program for future satisfaction of our LTIP obligations and $0.8 $2.2 million in LTIP units withheld for tax obligations related to awards that vested in 2018. 2021.
Net cash used in financing activities was $282.0$245.1 million for 20172020 and included $197.9$306.5 million in payments in connection with the redemption of the 2023 Notes and the issuance of the 2029 Notes, $139.5 million in net payments on our working capital revolving credit facility due in part to reduced inventory volume which was partiallyprimarily due to a changelower prices and an increase in market structure, $62.7net income, $71.3 million in cash distributions to our limited partners (preferred and common unitholdersunitholders) and our general partner, $20.7$70.7 million in net payments on our revolving credit facility, $0.5$1.6 million related to the acquisition of our noncontrolling interest at Basin Transload, $0.3 million in the repurchase of common units pursuant to our repurchase program for future satisfaction of our LTIP obligations and $0.3 million in LTIP units withheld for tax obligations related to awards that vested in 2017 and $0.52020. Net cash used in financing activities was offset by $344.7 million in distributions to our noncontrolling interest at Basin Transload, offset by $0.3proceeds in connection with the issuance of the 2029 Notes and $0.4 million in capital contributions from our noncontrolling interest at Basin Transload.
Net cash provided by financing activities was $122.4 million for 2016 and included $176.5 million in net borrowings from our working capital revolving credit facility, primarily due to an increase in prices, and $62.5 million in net proceeds from our sale-leaseback transaction, offset by $62.5 million in cash distributions to our common unitholders
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and our general partner, $52.3 million in net payments on our revolving credit facility representing proceeds from asset sales which was partially offset by $61.7 million in borrowings in connection with our railcar sublease termination, and $1.8 million in distributions to our noncontrolling interest at Basin Transload.
See Note 78 of Notes to Consolidated Financial Statement for supplemental cash flow information related to our working capital revolving credit facility and revolving credit facility for 2018, 20172021 and 2016.2020.
Credit Agreement
Certain subsidiaries of ours, as borrowers, and we and certain of our subsidiaries, as guarantors, have a $1.3$1.35 billion senior secured credit facility. We repay amounts outstanding and reborrow funds based on our working capital requirements and, therefore, classify as a current liability the portion of the working capital revolving credit facility we expect to pay down during the course of the year. The long-term portion of the working capital revolving credit facility is the amount we expect to be outstanding during the entire year. The credit agreement matures on April 30, 2020.May 6, 2024.
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 $450.0 million revolving credit facility to be used for |
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$200.0 million, in the aggregate, for a total credit facility of up to $1.6$1.55 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 $1.3$1.35 billion.
In addition, the credit agreement includes a swing line pursuant to which Bank of America, N.A., as the swing line lender, may make swing line loans in U.S. dollars in an aggregate amount equal to the lesser of (a) $75.0 million and (b) the Aggregate WC Commitments (as defined in the credit agreement). Swing line loans will bear interest at the Base Rate (as defined in the credit agreement). The swing line is a sub-portion of the working capital revolving credit facility and is not an addition to the total available commitments of $1.3$1.35 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. 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 2.00%1.75% to 3.00%2.75%, (2) the cost of funds rate plus 2.00%1.75% to 3.00%2.75%, or (3) the base rate plus 1.00%0.75% to 2.00%1.75%, each depending on the Combined Total Leverage Ratio (as defined in the credit agreement).
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The average interest rates for the credit agreementAgreement were 4.0%, 3.7%2.4% and 3.5%2.9% for the years ended December 31, 2018, 20172021 and 2016,2020, respectively.
On March 5, 2021, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after December 31, 2021 for the 1-week and 2-month U.S. dollar settings and after June 30, 2023 for the remaining U.S. dollar settings. Our credit agreement includes provisions to determine a replacement rate for LIBOR if necessary during its term based on the secured overnight financing rate published by the Federal Reserve Bank of New York. We currently do not expect the transition from LIBOR to have a material impact on us.
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 December 31, 2018,2021, we had total borrowings outstanding under the credit agreementAgreement of $473.3$398.1 million, including $220.0$43.4 million outstanding on the revolving credit facility. In addition, we had outstanding letters of credit of $56.0$156.0 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $770.7$795.9 million and $810.3$778.5 million at December 31, 20182021 and 2017,2020, respectively.
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, Bursaw Oil LLC, Global Partners Energy Canada ULC, Warex Terminals Corporation, Drake Petroleum Company, Inc., Puritan Oil Company, Inc. and Maryland Oil Company, Inc. subsidiaries.
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The credit agreement also includes certain baskets, including (i) a $25.0 million general secured indebtedness basket, (ii) a $25.0 million general investment basket, (iii) a $75.0 million secured indebtedness basket to permit the borrowers to enter into a Contango Facility (as defined in the credit agreement), (iv) a Sale/Leaseback Transaction (as defined in the credit agreement) basket of $100.0 million, and (v) a basket of $50.0$150.0 million in an aggregate amount over the life of the credit agreement for the purchase of our common units, provided that no Event of Default exists or would occur immediately following such purchase(s).
In addition, the credit agreement provides the ability for the borrowers to repay certain junior indebtedness, subject to a $100.0 million cap, so long as no Event of Default has occurred or will exist immediately after making such repayment.
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 December 31, 2018. The credit agreement also contains a representation whereby there can be no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect (as defined in the credit agreement). In addition, the credit agreement limits distributions by us to our unitholders to the amount of Available Cash (as defined in the partnership agreement).2021.
6.25% Senior Notes
6.875% Senior Notes Due 2029
On June 19, 2014,October 7, 2020, we and GLP Finance Corp. (collectively, the(the “Issuers”) entered into a Purchase Agreement with the Initial Purchasers (as defined therein) (the “Initial Purchasers”) pursuant to which the Issuers agreed to sell $375.0issued $350.0 million aggregate principal amount of the Issuers’ 6.25%6.875% senior notes due 20222029 (the “6.25%“2029 Notes”) to theseveral initial purchasers (the “2029 Notes Initial PurchasersPurchasers”) in a private placement exempt from the registration requirements under the Securities Act of 1933 as amended (the “Securities Act”). The 6.25% Notes were resold byWe used the Initial Purchasersnet proceeds from the offering to qualified institutional buyers pursuant to Rule 144A underfund the Securities Actredemption of our 7.00% senior notes due 2023 (the “2023 Notes”) and to persons outsiderepay a portion of the United States pursuant to Regulation Sborrowings outstanding under the Securities Act.
Indentureour credit agreement.
In connection with the private placement of the 6.25%2029 Notes, on June 24, 2014, the Issuers and the subsidiary guarantors and DeutscheRegions Bank, Trust Company Americas, as trustee, entered into an indenture as may be supplemented from time to time (the “Indenture”“2029 Notes Indenture”).
The 6.25%2029 Notes mature on JulyJanuary 15, 20222029 with interest accruing at a rate of 6.25%6.875% per annumannum. Interest is payable beginning July 15, 2021 and payable semi‑annuallythereafter semi-annually in arrears on January 15 and July 15 of each year, commencing January 15, 2015.year. The 6.25%2029 Notes are guaranteed on a joint and several senior unsecured basis by each of the Issuers and the subsidiary guarantors to the extent
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set forth in the 2029 Notes Indenture. Upon a continuing event of default, the trustee or the holders of at least 25% in principal amount of the 6.25%2029 Notes may declare the 6.25%2029 Notes immediately due and payable, except that an event of default resulting from entry into a bankruptcy, insolvency or reorganization with respect to us,the Issuers, any restricted subsidiary of ours that is a significant subsidiary or any group of our restricted subsidiaries that, taken together, would constitute a significant subsidiary of ours, will automatically cause the 6.25%2029 Notes to become due and payable.
The Issuers have the option to redeem up to 35% of the 6.25%2029 Notes prior to October 15, 2023 at a redemption price (expressed as a percentage of principal amount) of 106.875% plus accrued and unpaid interest, if any. The Issuers have the option to redeem the 2029 Notes, in whole or in part, at any time on or after January 15, 2024, at the redemption prices of 103.125%103.438% for the twelve‑monthtwelve-month period beginning Julyon January 15, 2018, 101.563%2024, 102.292% for the twelve‑monthtwelve-month period beginning JulyJanuary 15, 2019,2025, 101.146% for the twelve-month period beginning January 15, 2026, and 100.0%100% beginning on JulyJanuary 15, 20202027 and at any time thereafter, together with any accrued and unpaid interest to the date of redemption. In addition, prior to January 15, 2024, the Issuers may redeem all or any part of the 2029 Notes at a redemption price equal to the sum of the principal amount thereof, plus a make whole premium, plus accrued and unpaid interest, if any, to the redemption date. The holders of the notes2029 Notes may require the Issuers to repurchase the 6.25%2029 Notes following certain asset sales or a Change of Control Triggering Event (as defined in the 2029 Notes Indenture) at the prices and on the terms specified in the 2029 Notes Indenture.
The 2029 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
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restricted payments, restrict distributions by ourits subsidiaries, create liens, enter into sale‑leaseback transactions, sell assets or merge with other entities. Events of default under the Indenture include (i) a default in payment of principal of, or interest or premium, if any, on, the 6.25% Notes, (ii) breach of our covenants under the 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 $15.0 million and (v) failure to pay within 60 days uninsured final judgments exceeding $15.0 million.
7.00% Senior Notes
On June 1, 2015, the Issuers entered into a Purchase Agreement with the Initial Purchasers (as defined therein) (the “7.00% Notes Initial Purchasers”) pursuant to which the Issuers agreed to sell $300.0 million aggregate principal amount of the Issuers’ 7.00% senior notes due 2023 (the “7.00% Notes”) to the 7.00% Notes Initial Purchasers in a private placement exempt from the registration requirements under the Securities Act. The 7.00% Notes were resold by the 7.00% Notes Initial Purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act.
Indenture
In connection with the private placement of the 7.00% Notes on June 4, 2015 the Issuers and the subsidiary guarantors and Deutsche Bank Trust Company Americas, as trustee, entered into an indenture (the “7.00% Notes Indenture”).
The 7.00% Notes will mature on June 15, 2023 with interest accruing at a rate of 7.00% per annum and payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2015. The 7.00% Notes are guaranteed on a joint and several senior unsecured basis by each of the Issuers and the subsidiary guarantors to the extent set forth in the 7.00% Notes Indenture. Upon a continuing event of default, the trustee or the holders of at least 25% in principal amount of the 7.00% Notes may declare the 7.00% Notes immediately due and payable, except that an event of default resulting from entry into a bankruptcy, insolvency or reorganization with respect to us, any restricted subsidiary of ours that is a significant subsidiary or any group of our restricted subsidiaries that, taken together, would constitute a significant subsidiary of ours, will automatically cause the 7.00% Notes to become due and payable.
The Issuers have the option to redeem the 7.00% Notes, in whole or in part, at the redemption prices of 105.250% for the twelve-month period beginning June 15, 2018, 103.500% for the twelve-month period beginning June 15, 2019, 101.750% for the twelve-month period beginning June 15, 2020, and 100.0% beginning June 15, 2021 and at any time thereafter, together with any accrued and unpaid interest to the date of redemption. The holders of the 7.00% Notes may require the Issuers to repurchase the 7.00% Notes following certain asset sales or a Change of Control (as defined in the 7.00% Notes Indenture) at the prices and on the terms specified in the 7.00% Notes Indenture.
The 7.00% Notes Indenture contains covenants that will limit our ability to, among other things, incur
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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, enter into sale-leaseback transactions, sell assets or merge with other entities. Events of default under the 7.00%2029 Notes Indenture include (i) a default in payment of principal of, or interest or premium, if any, on, the 7.00%2029 Notes, (ii) breach of our covenants under the 7.00%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 $50.0 million and (v) failure to pay within 60 days uninsured final judgments exceeding $50.0 million.
Financing Obligations
Capitol Acquisition7.00% Senior Notes Due 2027
On July 31, 2019, the Issuers issued $400.0 million aggregate principal amount of 7.00% senior notes due 2027 (the “2027 Notes”) to several initial purchasers (the “2027 Notes Initial Purchasers”) in a private placement exempt from the registration requirements under the Securities Act. We used the net proceeds from the offering to fund the repurchase of our 6.25% senior notes due 2022 (the “2022 Notes”) in a tender offer and to repay a portion of the borrowings outstanding under our credit agreement.
In connection with the private placement of the 2027 Notes on July 31, 2019, the Issuers and the subsidiary guarantors andRegions Bank (as successor trustee to Deutsche Bank Trust Company Americas), as trustee, entered into an indenture as may be supplemented from time to time (the “2027 Notes Indenture”).
The 2027 Notes mature on August 1, 2027 with interest accruing at a rate of 7.00% per annum and payable semi-annually in arrears on February 1 and August 1 of each year, commencing February 1, 2020. The 2027 Notes are guaranteed on a joint and several senior unsecured basis by each of the Issuers and the subsidiary guarantors to the extent set forth in the 2027 Notes Indenture. Upon a continuing event of default, the trustee or the holders of at least 25% in principal amount of the 2027 Notes may declare the 2027 Notes immediately due and payable, except that an event of default resulting from entry into a bankruptcy, insolvency or reorganization with respect to the Issuers, any restricted subsidiary of ours that is a significant subsidiary or any group of our restricted subsidiaries that, taken together, would constitute a significant subsidiary of ours, will automatically cause the 2027 Notes to become due and payable.
Prior to August 1, 2022, the Issuers have the option to redeem up to 35% of the 2027 Notes in an amount not greater than the net cash proceeds of certain equity offerings at a redemption price (expressed as a percentage of principal amount) of 107% plus accrued and unpaid interest, if any. The Issuers have the option to redeem the 2027 Notes, in whole or in part, at any time on or after August 1, 2022, at the redemption prices of 103.500% for the twelve-month period beginning on August 1, 2022, 102.333% for the twelve-month period beginning August 1, 2023, 101.167% for the twelve-month period beginning August 1, 2024, and 100% beginning on August 1, 2025 and at any time thereafter, together with any accrued and unpaid interest to the date of redemption. In addition, prior to August 1, 2022, the Issuers may redeem all or any part of the 2027 Notes at a redemption price equal to the sum of the principal amount thereof, plus a make whole premium, plus accrued and unpaid interest, if any, to the redemption date. The holders of the 2027 Notes may require the Issuers to repurchase the 2027 Notes following certain asset sales or a Change of Control Triggering Event (as defined in the 2027 Notes Indenture) at the prices and on the terms specified in the 2027 Notes Indenture.
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 $50.0 million and (v) failure to pay within 60 days uninsured final judgments exceeding $50.0 million.
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Financing Obligations
Capitol Acquisition
In connection with the June 1, 2015 we acquiredacquisition of retail gasoline stations and dealer supply contracts from Capitol, Petroleum Group (“Capitol”). In connection with the acquisition, we assumed a financing obligation of $89.6 million associated with two sale-leaseback transactions by Capitol for 53 leased sites that did not meet the criteria for sale accounting.sites. During the terms of these leases, which expire in May 2028 and September 2029, in lieu of recognizing lease expense for the lease rental payments, we incur interest expense associated with the financing obligation.
Interest expense of approximately $9.4 million, $9.6$9.2 million and $9.6$9.3 million was recorded for the years ended December 31, 2018, 20172021 and 2016, respectively, and is included in interest expense in the accompanying consolidated statements of operations.2020, respectively. The financing obligation will amortize through expiration of the leases based upon the lease rental payments which were $9.7 million, $9.7$10.4 million and $9.5$10.1 million for the years ended December 31, 2018, 20172021 and 2016,2020, respectively. The financing obligation balance outstanding at December 31, 20182021 was $87.5$84.9 million associated with the Capitol acquisition.
Sale-Leaseback Transaction
OnIn connection with a sale in June 29, 2016 we sold to a premier institutional real estate investor (the “Buyer”)of real property assets, including the buildings, improvements and appurtenances thereto, at 30 gasoline stations and convenience stores, located in Connecticut, Maine, Massachusetts, New Hampshire and Rhode Island (the “Sale-Leaseback Sites”) for a purchase price of approximately $63.5 million. In connection with the sale, we entered into a Master Unitary Lease Agreement with the Buyer to lease back certain of the real property assets sold with respect tosold. The initial term of the Sale-Leaseback Sites (such Master Lease Agreement, together with the Sale-Leaseback Sites, the “Sale-Leaseback Transaction”). The Master Unitary Lease Agreement provides for an initial term of fifteen years that expires in 2031. We have one successive option to renew the lease for a ten-year period followed by two successive options to renew the lease for five-year periods on the same terms, covenants, conditions and rental as the primary non-revocable lease term. We do not have any residual interest nor the option to repurchase any of the sites at the end of the lease term. The proceeds from the Sale-Leaseback Transaction were used to reduce indebtedness outstanding under our revolving credit facility.
The sale did not meet the criteria for sale accounting as of December 31, 2018 due to prohibited continuing involvement. Specifically, the sale is considered a partial-saleIn connection with this transaction, which is a form of continuing involvement as we did not transfer to the Buyer the storage tank systems which are considered integral equipment of the Sale-Leaseback Sites. Additionally, a portion of the sold sites have material sub-lease arrangements, which is also a form of continuing involvement. As the sale of the Sale-Leaseback Sites did not meet the criteria for sale accounting, we did not recognize a gain or loss on the sale of the Sale-Leaseback Sites for the year ended December 31, 2018.
As a result of not meeting the criteria for sale accounting for these sites, the Sale-Leaseback Transaction is accounted for as a financing arrangement. As such, the property and equipment sold and leased back by us has not been derecognized and continues to be depreciated. We recognized a corresponding financing obligation of $62.5 million equal to the $63.5 million cash proceeds received for the sale of these sites, net of $1.0 million financing fees.million. During the term of the lease, which expires in June 2031, in lieu of recognizing lease expense for the lease rental payments, we incur interest expense associated with the financing obligation. Lease rental payments are recognized as both interest expense and a reduction of the principal balance associated with the financing obligation. Interest expense was $4.4 million, $4.4$4.3 million and $2.2$4.3 million for each of the years ended December 31, 2018, 20172021 and 2016, respectively,2020, and lease rental payments were $4.5 million, $4.5$4.7 million and $2.2$4.7 million for each of the years ended December 31, 2018, 20172021 and 2016,
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respectively.2020. The financing obligation balance outstanding at December 31, 20182021 was $62.5$61.7 million associated with the Sale-Leaseback Transaction. this transaction.
Off‑Balance Sheet Arrangements
We have no off‑balance sheet arrangements.
Impact of Inflation
Inflation has been relatively low in recent years and did not have a material impact on our results of operations for the years ended December 31, 2018, 2017 and 2016.
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 1314 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 U.S. GAAP. A summary of theour significant accounting policies that we have adopted and followedused in the preparation of our consolidated financial statements is detailed in Note 2 of Notes to Consolidated Financial Statements.
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.known; therefore, our actual results could differ from these estimates under different assumptions or conditions. We have identified the followingbelieve our critical accounting estimates that in our opinion, are subjective in nature, require the exercise of judgment and involve complex analysis:
Inventory
We hedge substantially all of our petroleum and ethanol inventory using a variety of instruments, primarily exchange‑traded futures contracts. These futures contracts are entered into when inventory is purchased and are either designated as fair value hedges against the inventory on a specific barrel basis for inventories qualifying for fair value hedge accounting or not designated and maintained as economic hedges against certain inventory of ours on a specific barrel basis. Changes in fair value of these futures contracts, as well as the offsetting change in fair value on the hedged inventory, are recognized in earnings as an increase or decrease in cost of sales. All hedged inventory designated in a fair value hedge relationship is valued using the lower of cost, as determined by specific identification, or net realizable value, as determined at the product level. All petroleum and ethanol inventory not designated in a fair value hedging relationship is carried at the lower of historical cost, on a first‑in, first‑out basis, or net realizable value. RIN inventory is carried at the lower of historical cost, on a first-in, first-out basis, or net realizable value. Convenience store inventory is carried at the lower of historical cost, based on a weighted average cost method, or net realizable value.
In addition to our own inventory, we have exchange agreements for petroleum products and ethanol with unrelated third-party suppliers, whereby we may draw inventory from these other suppliers and suppliers may draw inventory from us. Positive exchange balances are accounted for as accounts receivable. Negative exchange balances are accounted for as accounts payable. Exchange transactions are valued using current carrying costs.
Leases
We have terminal and throughput lease arrangements with various other oil terminals and third parties, certain of which arrangements have minimum usage requirements. In addition, we lease certain gasoline stations from third
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parties under long‑term arrangements with various expiration dates. We also have several long‑term lease agreements with Getty Realty, which enables us to supplycomplex analysis include the valuation of physical forward derivative contracts, valuation of goodwill and operate certain Getty Realty gasoline station sites,environmental liabilities.
Valuation of Physical Forward Derivative Contracts
As described in Note 9 and with the Port of Columbia County (formerly known as Port of St. Helens) in Clatskanie, Oregon for land and for access rights to a rail spur and dock located at our Oregon facility.
We have future commitments, principally for office space and computer equipment, under the terms of operating lease arrangements. We also lease railcars and barges through various lease arrangements with various expiration dates. We have rental income from gasoline stations and cobranding arrangements and lease income from space leased to several unrelated third parties at several of our terminals.
In addition, in June of 2016, we sold real property assets, including the buildings, improvements and appurtenances thereto, at 30 gasoline stations and convenience stores. In connection with this sale-leaseback transaction, we are party to a master unitary lease agreement with the buyer to lease back those real property assets sold with respect to such sites. See Note 710 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 additional information.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 December 31, 2021, derivative assets of $11.7 million and derivative liabilities of $31.7 million were recorded for physical forward derivative contracts based on Level 2 fair value measurements. There were no Level 3 physical forward derivative contracts as of December 31, 2021.
Accounting and reporting guidance for leases requires that leases be evaluated and classified as operating or capital leases for financial reporting purposes. The lease term used for lease evaluation includes option periods only in instances in which the exercisefair value measurement of physical forward derivative instruments is complex given the judgmental nature of the option period canassumptions used as inputs into the valuation models. These include inputs used to value commodity products at locations whereby active market pricing may not be reasonably assuredavailable. These assumptions are forward-looking and failure to exercise such options would result in ancould be affected by future economic penalty. Lease rental expense and income is recognized on a straight‑line basis over the term of the lease.market conditions.
We will be adopting ASU 2016-02, “Leases,” effective beginningutilize 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 first quartermethods used to determine the fair value of 2019 and do not expect this standard willthese contracts could have a material effect on our consolidated statementresults of operations. However, we estimate approximately $0.3 billion of right-of-use assets and liabilities will be recognized upon adoption on our consolidated balance sheet.
Revenue Recognition
Our sales relate primarily to the sale of refined petroleum products, gasoline blendstocks, renewable fuels, crude oil and propane and are recognized along with the related receivable upon delivery, net of applicable provisions for discounts and allowances. We may also provide for shipping costs at the time of sale, which are included in cost of sales.
Contracts with customers typically contain pricing provisions that are tied to a market index, with certain adjustments based on quality and freight due to location differences and prevailing supply and demand conditions, as well as other factors. As a result, the price of the products fluctuates to remain competitive with other available product supplies. The revenue associated with such arrangements is recognized upon delivery.
In addition, we generate revenue from our logistics activities when we store, transload and ship products owned by others. Revenue from logistics services is recognized as services are provided.
Logistics agreements may require counterparties to throughput a minimum volume over an agreed-upon period and may include make-up rights if the minimum volume isdo not met. We recognize revenue associated with make-up rights at the earlier of when the make-up volume is shipped, the make-up right expires or when it is determined that the likelihood that the shipper will utilize the make-up right is remote.
We also recognize convenience store sales of gasoline, grocery and other merchandise and sundries at the time of the sale to the customer. Gasoline station rental income is recognized on a straight‑line basis over the term of the lease.
Product revenue is not recognized on exchange agreements, which are entered into primarily to acquire various refined petroleum products, gasoline blendstocks, renewable fuels and crude oil of a desired quality or to reduce transportation costs by taking delivery of products closer to our end markets. We recognize net exchange differentials due from exchange partners in sales upon delivery of product to an exchange partner. We recognize net exchange differentials due to exchange partners in cost of sales upon receipt of product from an exchange partner.
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The amounts recorded for bad debts are generally based upon a specific analysis of aged accounts while also factoring in any new business conditions that might impact the historical analysis, such as market conditions and bankruptcies of particular customers. Bad debt provisions are included in selling, general and administrative expenses.
Trustee Taxes
We collect trustee taxes, which consist of various pass through taxes collected on behalf of taxing authorities, and remit such taxes directly to those taxing authorities. Examples of trustee taxes include, among other things, motor fuel excise tax and sales and use tax. As such, it is our policy to exclude trustee taxes from revenues and cost of sales and account for them as current liabilities. See Note 11 of Notes to Consolidated Financial Statements for additional information. We may be subject to audits of our state and federal tax returns prepared for trustee taxes.
Derivative Financial Instruments
We principally use derivative instruments, which include regulated exchange‑traded futures and options contracts (collectively, “exchange‑traded derivatives”) and physical and financial forwards and over‑the counter (“OTC”) swaps (collectively, “OTC derivatives”), to reduce our exposure to unfavorableanticipate future changes in commodity market prices and interest rates. We use these exchange‑traded and OTC derivatives to hedge commodity price risk associated with our inventory and undelivered forward commodity purchases and sales (“physical forward contracts”). We account for derivative transactions in accordance with ASC Topic 815, “Derivatives and Hedging,” and recognize derivatives instruments as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. The changes in fair value of the derivative transactions are presented currently in earnings, unless specific hedge accounting criteria are met.
The fair value of exchange‑traded derivative transactions reflects amounts that would be received from or paid to our brokers upon liquidation of these contracts. The fair value of these exchange‑traded derivative transactions is presented on a net basis, offset by the cash balances on deposit with our brokers, presented as brokerage margin deposits in the consolidated balance sheets. The fair value of OTC derivative transactions reflects amounts that would be received from or paid to a third party upon liquidation of these contracts under current market conditions. The fair value of these OTC derivative transactions is presented on a gross basis as derivative assets or derivative liabilities in the consolidated balance sheets, unless a legal right of offset exists. The presentation of the change in fair value of our exchange‑traded derivatives and OTC derivative transactions depends on the intended use of the derivative and the resulting designation.
Derivatives Accounted for as Hedges—We utilize fair value hedges and cash flow hedges to hedge commodity price risk and interest rate risk.
Fair Value Hedges
Derivatives designated as fair value hedges aremethods used to hedge price risk in commodity inventories and principally include exchange‑traded futures contracts that are entered into indetermine the ordinary course of business. For a derivative instrument designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting change in fair value on the hedged item of the risk being hedged. Gains and losses related to fair value hedges are recognized in the consolidated statements of operation through cost of sales. These futures contracts are settled on a daily basis by us through brokerage margin accounts.
Our fair value hedges include exchange-traded futures contracts and OTC derivative contracts that are hedges against inventory with specific futures contracts matched to specific barrels. The change in fair value of these futures contracts and the change in fair value of the underlying inventory generally provide an offset to each other in the consolidated statement of operations.
Cash Flow Hedges
Derivatives designated as cash flow hedges are used to hedge interest rate risk from fluctuations in interest rates and may include various interest rate derivative instruments entered into with major financial institutions. For a
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derivative instrument being designated as a cash flow hedge, the effective portion of the derivative gain or loss is initially reported as a component of other comprehensive income (loss) and subsequently reclassified into the consolidated statement of operations through interest expense in the same period that the hedged exposure affects earnings. The ineffective portion is recognized in the consolidated statement of operations immediately.
Derivatives Not Accounted for as Hedges—We utilize petroleum and ethanol commodity contracts, foreign currency derivatives and commodity contracts to hedge price and currency risk in certain commodity inventories and physical forward contracts.
Petroleum and Ethanol Commodity Contracts
We use exchange‑traded derivative contracts to hedge price risk in certain commodity inventories which do not qualify for fair value hedge accounting or are not designated by us as fair value hedges. Additionally, we use exchange‑traded derivative contracts, and occasionally financial forward and OTC swap agreements, to hedge commodity price exposure associated with our physical forward contracts which are not designated by us as cash flow hedges. These physical forward contracts, to the extent they meet the definition of a derivative, are considered OTC physical forwards and are reflected as derivative assets or derivative liabilities in the consolidated balance sheet. The related exchange‑traded derivative contracts (and financial forward and OTC swaps, if applicable) are also reflected as brokerage margin deposits (and derivative assets or derivative liabilities, if applicable) in the consolidated balance sheet, thereby creating an economic hedge. Changes in fair value of these derivative instruments are recognized incontracts.
Valuation of Goodwill
We allocate the consolidated statement of operations through cost of sales. These exchange traded derivatives are settled on a daily basis by us through brokerage margin accounts.
While we seek to maintain a position that is substantially balanced within our commodity product purchase and sale activities, we may experience net unbalanced positions for short periods of time as a result of variances in daily purchases and sales and transportation and delivery schedules as well as other logistical issues inherent in our businesses, such as weather conditions. In connection with managing these positions, we are aided by maintaining a constant presence in the marketplace. We also engage in a controlled trading program for up to an aggregate of 250,000 barrels of commodity products at any one point in time. Changes in fair value of these derivative instruments are recognized in the consolidated statement of operations through cost of sales.
Margin Deposits
All of our exchange‑traded derivative contracts (designated and not designated) are transacted through clearing brokers. We deposit initial margin with the clearing brokers, along with variation margin, which is paid or received on a daily basis, based upon the changes in fair value of open futures contracts and settlement of closed futures contracts. Cash balances on deposit with clearing brokers and open equity are presented on a net basis within brokerage margin deposits in the consolidated balance sheets.
Goodwill
Goodwill represents the future economic benefits arising from assets acquiredpurchase price associated in a business combination thatto 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 individually identifiedto exceed one year from the acquisition date, we may record adjustments to the assets acquired and separately recognized. 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. Goodwill is tested for impairment annually as of October 1 or when events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. Derecognized
All of our goodwill associated with our disposition activities of GDSO sites is included in the carrying value of assets sold in determining the gain or loss on disposal,allocated to the extent the disposition of assets qualifies as a disposition of a business under ASC 805. The GDSO reporting unit’s goodwill that was derecognized related to the disposition of sites that met the definition of a business was $3.9 million, $4.0 millionsegment. During 2021 and $17.9 million for the years ended December 31, 2018, 2017 and 2016, respectively (see Note 6 of Notes to Consolidated Financial Statements).
During both 2018 and 2017,2020, we completed a quantitative assessment for the GDSO reporting unit. Factors included in the assessment included both macro‑economicmacro-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
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comparables approach. Based on our assessment, no impairment was identified.
In 2016, we recognized a goodwill impairment charge of $121.7 million related to the Wholesale reporting unit, substantially all of which is due to crude oil related activities. See Note 2 of Notes to Consolidated Financial Statements for a description of the facts and circumstances related to the impairment charges.
Evaluation of Long-Lived Asset Impairment
Accounting and reporting guidance for long‑lived assets requires that a long‑lived asset (group) be reviewed for impairment when events or changes in circumstances indicate that the carrying amount might not be recoverable. Accordingly, we evaluate long-lived assets for impairment whenever indicators of impairment are identified. If indicators of impairment are present, we assess impairment by comparing the undiscounted projected future cash flows from the long‑lived assets to their carrying value. If the undiscounted cash flows are less than the carrying value, the long‑lived assets will be reduced to their fair value.
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.
Item 7A. Quantitative and QualitativeQualitative Disclosures About Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices. The principal market risks to which we are exposed are interest rate risk and commodity risk. We currently utilize an interest rate swap to manage exposure to interest rate risk and various derivative instruments to manage exposure to commodity risk.
Interest Rate Risk
We utilize variable rate debt and are exposed to market risk due to the floating interest rates on our credit agreement. Therefore, from time to time, we utilize interest rate collars, swaps and caps to hedge interest obligations on specific and anticipated debt issuances.
As of December 31, 2018,2021, we had total borrowings outstanding under our credit agreement of $473.3$398.1 million. Please read Part II, Item 7, “Management’s Discussion and Analysis—Liquidity and Capital Resources—Credit Agreement,” for information on interest rates related to our borrowings. The impact of a 1% increase in the interest rate
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on this amount of debt would have resulted in an increase in interest expense, and a corresponding decrease in our results of operations, of approximately $4.7$4.0 million annually, assuming, however, that our indebtedness remained constant throughout the year.
Commodity Risk
We hedge our exposure to price fluctuations with respect to refined petroleum products, renewable fuels, crude oil and gasoline blendstocks in storage and expected purchases and sales of these commodities. The derivative instruments utilized consist primarily of exchange‑tradedexchange-traded futures contracts traded on the NYMEX, CME and ICE and over‑the‑counterover-the-counter transactions, including swap agreements entered into with established financial institutions and other credit‑approvedcredit-approved energy companies. Our policy is generally to purchase only products for which we have a market and to structure our sales contracts so that price fluctuations do not materially affect our profit. While our policies are designed to minimize market risk, as well as inherent basis risk, exposure to fluctuations in market conditions remains. Except for the controlled trading program discussed below, we do not acquire and hold futures contracts or other derivative products for the purpose of speculating on price changes that might expose us to indeterminable losses.
While we seek to maintain a position that is substantially balanced within our commodity product purchase and sales activities, we may experience net unbalanced positions for short periods of time as a result of variances in daily purchases and sales and transportation and delivery schedules as well as other logistical issues inherent in our businesses,
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such as weather conditions. In connection with managing these positions, we are aided by maintaining a constant presence in the marketplace. We also engage in a controlled trading program for up to an aggregate of 250,000 barrels of commodity products at any one point in time. Changes in the fair value of these derivative instruments are recognized in the consolidated statements of operations through cost of sales. In addition, because a portion of our crude oil business may be conducted in Canadian dollars, we may use foreign currency derivatives to minimize the risks of unfavorable exchange rates. These instruments may include foreign currency exchange contracts and forwards. In conjunction with entering into the commodity derivative, we may enter into a foreign currency derivative to hedge the resulting foreign currency risk. These foreign currency derivatives are generally short‑termshort-term in nature and not designated for hedge accounting.
We utilize exchange‑tradedexchange-traded futures contracts and other derivative instruments to minimize or hedge the impact of commodity price changes on our inventories, fuel purchases and forward fixed price commitments. Any hedge ineffectiveness is reflected in our results of operations. We utilize regulated exchanges, including the NYMEX, CME and ICE, which are exchanges for the respective commodities that each trades, thereby reducing potential delivery and supply risks. Generally, our practice is to close all exchange positions rather than to make or receive physical deliveries. With respect to other products such as ethanol, which may not have a correlated exchange contract, we enter into derivative agreements with counterparties that we believe have a strong credit profile, in order to hedge market fluctuations and/or lock‑in margins relative to our commitments.
At December 31, 2018,2021, the fair value of all of our commodity risk derivative instruments and the change in fair value that would be expected from a 10% price increase or decrease are shown in the table below (in thousands):
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|
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|
|
|
|
|
|
|
| ||||||||||
|
| Fair Value at |
| Gain (Loss) |
| |||||||||||||||
|
| December 31, |
| Effect of 10% |
| Effect of 10% |
| |||||||||||||
|
| 2018 |
| Price Increase |
| Price Decrease |
| |||||||||||||
| | | | | | | | | | | ||||||||||
|
| Fair Value at |
| Gain (Loss) |
| |||||||||||||||
| | December 31, | | Effect of 10% |
| Effect of 10% |
| |||||||||||||
| | 2021 | | Price Increase | | Price Decrease |
| |||||||||||||
Exchange traded derivative contracts |
| $ | 83,617 |
| $ | (23,133) |
| $ | 23,133 |
| | $ | 25,911 | | $ | (32,174) | | $ | 32,174 | |
Forward derivative contracts |
|
| 21,896 |
|
| (7,433) |
|
| 7,433 |
| |
| (20,002) | |
| (7,065) | |
| 7,065 | |
Total |
| $ | 105,513 |
| $ | (30,566) |
| $ | 30,566 |
| | $ | 5,909 | | $ | (39,239) | | $ | 39,239 | |
The fair values of the futures contracts are based on quoted market prices obtained from the NYMEX, CME and ICE. The fair value of the swaps and option contracts are estimated based on quoted prices from various sources such as independent reporting services, industry publications and brokers. These quotes are compared to the contract price of the swap, which approximates the gain or loss that would have been realized if the contracts had been closed out at December 31, 2018.2021. For positions where independent quotations are not available, an estimate is provided, or the prevailing market price at which the positions could be liquidated is used. All hedge positions offset physical exposures
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to the physical market; none of these offsetting physical exposures are included in the above table. Price‑riskPrice-risk sensitivities were calculated by assuming an across‑the‑boardacross-the-board 10% increase or decrease in price regardless of term or historical relationships between the contractual price of the instruments and the underlying commodity price. In the event of an actual 10% change in prompt month prices, the fair value of our derivative portfolio would typically change less than that shown in the table due to lower volatility in out‑monthout-month prices. We have a daily margin requirement to maintain a cash deposit with our brokers based on the prior day’s market results on open futures contracts. The balance of this deposit will fluctuate based on our open market positions and the commodity exchange’s requirements. The brokerage margin balance was $14.8$33.7 million at December 31, 2018.2021.
We are exposed to credit loss in the event of nonperformance by counterparties to our exchange‑tradedexchange-traded derivative contracts, physical forward contracts and swap agreements. We anticipate some nonperformance by some of these counterparties which, in the aggregate, we do not believe at this time will have a material adverse effect on our financial condition, results of operations or cash available for distribution to our unitholders. Exchange‑tradedExchange-traded derivative contracts, the primary derivative instrument utilized by us, are traded on regulated exchanges, greatly reducing potential credit risks. We utilize major financial institutions as our clearing brokers for all NYMEX, CME and ICE derivative transactions and the right of offset exists with these financial institutions. Accordingly, the fair value of our exchange‑tradedexchange-traded derivative instruments is presented on a net basis in the consolidated balance sheet. Exposure on physical forward contracts and swap agreements is limited to the amount of the recorded fair value as of the balance sheet dates.
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Item 8. Financial Statements and Supplementary Data.Data.
The information required here is included in the report as set forth in the “Index to Financial Statements” on page F‑1.F-1.
Item 9. Changes in and DisagreementsDisagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our principal executive officer and principal financial officer, management evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‑15(e)13a-15(e) or 15d‑15(e)15d-15(e) of the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were operating and effective as of December 31, 2018.2021.
Internal Control Over Financial Reporting
Management’s Annual Report
We are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a‑15(f)13a-15(f) or 15d‑15(f)15d-15(f) of the Exchange Act). Our internal control over financial reporting is the process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. There are inherent limitations in the effectiveness of internal control over financial reporting, including the possibility that misstatements may not be prevented or detected. Accordingly, even effective internal controls over financial reporting can provide only reasonable assurance with respect to financial statement preparation.
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Under the supervision and with the participation of our principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2018.2021.
The effectiveness of our internal control over financial reporting as of December 31, 20182021 has been audited by Ernst & Young LLP, our independent registered public accounting firm, as stated in their report. See “Report of Independent Registered Public Accounting Firm” on Page F-3page F-4 of our consolidated financial statements.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December31, 20182021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
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PART IIIIII
Item 10. Directors, Executive OfficersOfficers and Corporate Governance.
Global GP LLC, our general partner, manages our operations and activities on our behalf. Our general partner is not elected by our unitholders. Unitholders are not entitled to elect the directors of our general partner or directly or indirectly participate in our management or operation. Affiliates of the Slifka family own 100% of the ownership interests in our general partner. Our general partner is controlled by Richard Slifka and the Alfred A. Slifka 1990 Trust Under Article II-A (the “AS Article II-A Trust”) directly and through their beneficial ownership of entities that own ownership interests in our general partner. Eric Slifka and Andrew Slifka beneficially ownowns interests in our general partner. Our general partner is liable, as general partner, for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are made specifically nonrecourse to it. Whenever possible, our general partner intends to incur indebtedness or other obligations that are nonrecourse.
Alfred A. Slifka, former chairman of the board of our general partner, passed away on March 9, 2014. Mr. Slifka’s estate closed effective February 28, 2017 and his interest in our general partner and his beneficially owned interests in Global Partners LP and its affiliates were transferred to the AS Article II-A Trust on that date. Eric Slifka, our President and Chief Executive Officer, and his two siblings are the trustees of the AS Article II-A Trust. Eric Slifka has been delegated sole voting authority over the AS Article II-A Trust’s ownership interests in us and our general partner.
Four members of the board of directors of our general partner serve on a conflicts committee to review specific matters that the board believes may involve conflicts of interest. The conflicts committee determines if the resolution of the conflict of interest is fair and reasonable to us. Members of the conflicts committee may not be officers or employees of our general partner or directors, officers or employees of its affiliates and must meet the independence and experience standards established by the NYSE and the Securities Exchange Act of 1934. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners and not a breach by our general partner of any duties it may owe us or our unitholders. In addition, we have a separately‑designatedseparately-designated standing audit committee established in accordance with the Securities Exchange Act of 1934 and a compensation committee. The four independent members of the board of directors of our general partner, Messrs. Hailer, McCool, McKown, WatchmakerOwens and Hailer,Pereira, serve as the sole members of the conflicts, audit and compensation committees.
Even though most companies listed on the NYSE are required to have a majority of independent directors serving on the board of directors of the listed company and establish and maintain an audit committee, a compensation committee and a nominating/corporate governance committee, each consisting solely of independent directors, the NYSE does not require a listed limited partnership like us to have a majority of independent directors on the board of directors of our general partner or to establish a compensation committee or a nominating/corporate governance committee.
No member of the audit committee is an officer or employee of our general partner or director, officer or employee of any affiliate of our general partner. Furthermore, each member of the audit committee is independent as defined in the listing standards of the NYSE. The board of directors of our general partner has determined that a member of the audit committee, namely Kenneth Watchmaker,Jaime Pereira, is an “audit committee financial expert” as defined by the SEC.
Among other things, the audit committee is responsible for reviewing our external financial reporting, including reports filed with the SEC, engaging and reviewing our independent auditors and reviewing procedures for internal auditing and the adequacy of our internal accounting controls.
We are managed and operated by the directors and executive officers of our general partner. Our operating personnel are employees of our general partner or certain of our operating subsidiaries.
All of our executive officers devote substantially all of their time to managing our businesses and affairs, but from time to time certain executive officers perform or have performed services for our former affiliate, Global Petroleum Corp. (dissolved in 2020) and/or other entities controlled by the Slifka family. Please read Part III, Item 13, “Certain
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“Certain Relationships and Related Transactions, and Director Independence—Relationship of Management with Global Petroleum Corp.Services Agreement.” Our non‑managementnon-management directors devote as much time as is necessary to prepare for and attend board of directors and committee meetings.
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Set forth below are the names, ages (as of March 5, 2019)February 22, 2022) and titles of persons currently serving as directors and executive officers of our general partner:
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Name | Age | Position with Global GP LLC | |||
Richard Slifka |
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| Chairman | |
Eric Slifka |
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| President, Chief Executive Officer and Vice Chairman | |
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Mark A. Romaine |
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| Chief Operating Officer | |
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| Chief Financial Officer | |
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Matthew Spencer |
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| Chief Accounting Officer | |
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Robert J. McCool |
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| Director | |
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| Director | |
John T. Hailer | |
| | Director | |
Robert W. Owens | 68 |
| Director | |
Richard Slifka was elected Vice Chairman of the Board of our general partner in March 2005 and became Chairman in March 2014. He had been employed with Global Companies LLC or its predecessors since 1963. Mr. Slifka served as Treasurer and a director of Global Companies LLC since its formation in December 1998. Mr. Slifka also iswas a shareholder, a director and the President of Global Petroleum Corp., a privately held affiliated company that had owned, operated and leased to us our petroleum products storage terminal located in Revere, Massachusetts until we acquired the terminal in January 2015. Mr. Slifka is a past director of the New England Fuel Institute and currently serves as president of the Independent Fuel Terminal Operators Association. He alsoserved on the Boston Medical Center Corporation Board of Trustees from 2006–2019 and on the BMC Health System, Inc., Board of Trustees from 2013–2021. He currently serves on the board of directors of St. Francis House and the board of trustees of Boston Medical Center. He has beenHouse. Mr. Slifka served as a director of the National Multiple Sclerosis Society since 1988.from 1988–2019. Mr. Slifka’s extensive knowledge of the oil industry in general and of our history, customers and suppliers make him uniquely qualified to serve as our Chairman of the Board. Richard Slifka is the brother of the late Alfred A. Slifka.
Eric Slifka was elected President, Chief Executive Officer and director of Global GP LLC, the general partner of Global Partners LP, in March 2005 and became Vice Chairman in March 2014. He has been employed with Global Companies LLC or its predecessors since 1987. Mr. Slifka served as President and Chief Executive Officer and a director of Global Companies LLC since July 2004 and as Chief Operating Officer and a director of Global Companies LLC from its formation in December 1998 to July 2004. Prior to 1998, Mr. Slifka held various senior positions in the accounting, supply, distribution and marketing departments of the predecessors to Global Companies LLC. He is a member of the National Petroleum Council and serves on the board of directors of the Energy Policy Research Foundation, Inc. and Massachusetts General Hospital President’s Council. Mr. Slifka is the son of the late Alfred A. Slifka and the nephew of Richard Slifka.
Andrew Slifka was elected to serve as a directorMarkA.Romaine hasbeen ChiefOperatingOfficer of our general partner in April 2012 and has been serving as Executive Vice President of GlobalPartners LP since March 2012 and President of Alliance Energy LLC and its predecessor Alliance Energy Corp. since November 2007. He has been employed with Alliance since 1999. Mr. Slifka served as Vice President and General Manager for the Northeast region (RI, MA, NH, and ME) of Alliance Energy Corp. from 1999 to 2003 and as Executive Vice President from 2003 to November 2007. From 1991 to 1999 Mr. Slifka held various positions in the supply, distribution, and marketing departments with the predecessor of Global Companies LLC, Global Petroleum Corp. He serves on the boards of directors of NECSEMA (New England Convenience Store & Energy Marketers Association), the National Multiple Sclerosis Society, the CF & MS Fund Foundation Inc. and is on the board of trustees of The Rivers School. Mr. Slifka is the son of Richard Slifka and the nephew of the late Alfred A. Slifka.
Mark A. Romaine has been Chief Operating Officer of Global Partners LP since July 2013. Mr. Romaine served asthe SeniorVice President ofLight Oil Supplyand Distribution forGlobal PartnersLPfrom2006until June2013.He joined apredecessor company toGlobalCompanies LLC in1998asPremiumFuelsMarketingManager.Hisexperienceinthepetroleumproductsindustryincludesoperationsand marketingpositionswithPlymouth,MA-basedVoltaOil.Mr. Romainereceivedabachelor’sdegreefromProvidenceCollegeand anMBAfromtheUniversityofMassachusetts.
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Daphne H. Foster was elected to serve as a director of our general partner in May 2016 and has been Chief Financial Officer of Global Partners LP since July 2013. Ms. Foster served as Treasurer of Global Partners LP from 2010 until June 2013. She joined the Partnership in 2007. Her experience in the petroleum products industry includes several years as a Vice President in the Energy and Utilities Division of Bank of Boston. She started her banking career in 1982 at Bank of Boston and later joined Citizens Financial Group, where she oversaw the Loan Officer Development Program. Ms. Foster received a bachelor's degree and an MBA from Boston University.
Edward J. Faneuil was elected Executive Vice President, General Counsel and Secretary of our general partner in March 2005. He has been employed with Global Companies LLC or its predecessors since 1991. Mr. Faneuil served as General Counsel and Secretary of Global Companies LLC since its formation in December 1998. He previously served as Executive Vice President, Secretary, and General Counsel of Alliance EnergyLLC (now a wholly owned subsidiary of Global Partners LP). He currently serves as Executive Vice President, General Counsel and Secretary of Global Petroleum Corp. and Montello Oil Corporation. Mr. Faneuil received a bachelor’s degree from Trinity College and a J.D. from Suffolk University Law School.
Matthew SpencerGregory B. Hanson was appointed by the Board of Directors of our general partner to serve as the Chief Financial Officer of Global Partners LP, commencing effective September 1, 2021. Mr. Hanson previously served as Treasurer of our general partner and of Global Partners LP from August 2014 through August 2021. Mr. Hanson has more than 20 years of financial experience. Before joining the Partnership in 2013, he served as a Senior Vice President at GE Energy Financial Services and RBS Citizens Financial Group. Before that, he was a Vice President for Merrill
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Lynch Capital and a Principal for Bank of America. Mr. Hanson received a bachelor’s degree from Colby College and an M.B.A. from Babson College’s Franklin W. Olin School of Business.
Jeremy (Jez) Langhorn was appointed by the Board of Directors of our general partner to serve as the Chief Human Resources Officer of Global Partners LP, commencing April 2021. Mr. Langhorn leads the strategic Human Resources agenda to develop and implement talent, organization and culture strategies to support our employees and accelerate the growth of the business. Between 1983 and April 2021, Mr. Langhorn held various Operational and HR roles with McDonald’s Corporation in the UK, Northern Europe, and the United States before finally serving as Corporate Vice President of HR for McDonald’s Global business. In this role, he supported all global business functions, leadership teams in the United States and operating business units in Europe, Latin America, the Middle East, Asia and Japan. Mr. Langhorn has built a reputation for driving strategic transformation and building employee engagement across diverse geographies and employee populations. He is a member of the Society for Human Resource Management, a Fellow of the Chartered Institute of Personnel and Development and a Fellow of The Royal Society for Arts, Manufactures & Commerce.
Matthew Spencer was appointed by the Board of Directors of our general partner to serve as the Chief Accounting Officer of Global Partners LP commencing January 1, 2018. Mr. Spencer served as Controller of the general partner from September 2012 through December 2017. Mr. Spencer joined the Partnership from SharkNinja Operating LLC (formerly Euro-Pro Operating LLC), where he served as Assistant Controller. Prior to that, he was a Senior Manager at Ernst & Young.Young LLP.
David K. McKown was elected to serve as a director of our general partner and as a member of the conflicts, compensation and audit committees of the board of directors of our general partner in October 2005. He has been a Senior Advisor to the Bank Loan Fund of Eaton Vance Management, whose principal business is creating, marketing and managing investment funds and providing investment management services to institutions and individuals, since 2000. In this capacity he serves as a credit analyst and a research source for many of the changes in the accounting area, such as marked to market valuations, changes in bank lending rules and understanding of new financial products and derivatives. Mr. McKown retired in March 2000 having served as a Group Executive with BankBoston since 1993. Mr. McKown has been in the banking industry for over 40 years, where he acquired extensive accounting, financial structuring and negotiation skills, having worked at BankBoston for over 33 years as a Senior Credit Officer, the head of a workout unit, the head of BankBoston’s energy lending group and the head of BankBoston’s real estate and corporate finance departments. He also was a managing director of BankBoston’s private equity unit. Mr. McKown has served on the boards of four public companies and four private companies in a variety of industries. He currently serves as a director of Safety Insurance Group and several private companies. Mr. McKown previously served as a member of the board of directors of Equity Office Properties. Mr. McKown’s extensive financial expertise and longstanding work in BankBoston’s energy practice make him well qualified to serve as a director of our general partner.
Robert J. McCool was elected to serve as a director of our general partner, the chair of the conflicts committee of the board of directors of our general partner, and a member of the compensation and audit committees of the board of directors of our general partner in October 2005. In September 2020, he was designated co-chair of the conflicts committee. He had served as an Advisor to Tetco Inc., a privately held company in the energy industry, for 15 years and has been in the refined petroleum industry for over 40 years. He worked for Mobil Oil for 33 years in various positions including manager, planning and financial analysis, controller, manager U.S. lubricants operations and manager, budget and controls for U.S. acquisitions. Mr. McCool retired in 1998 having served as Executive Vice President responsible for Mobil Oil’s North and South America marketing and refining business. Mr.McCool’s extensive experience with the financial, accounting and managerial aspects of the refined petroleum products industry make him well qualified to serve as a director of our general partner.
Kenneth I. WatchmakerJaime Pereira was elected to serve as a director of our general partner and as a member of the conflicts, compensation and compensationaudit committees of the board of directors of our general partner, and chair of the audit committee of the board of directors of our general partner in October 2005. He subsequently became2021. Mr. Pereira was appointed as the chair of our general partner's compensation committeethe Audit Committee as well. He servedof January 1, 2022.Mr. Pereira has over forty years of accounting and advisory experience working with a wide variety of domestic and international, public and private companies, including serving as Executive Vice President and Chief Financial Officer of Reebok International Ltd. from 1995 until March 2006. Mr. Watchmaker joined Reebok International Ltd. in July 1992 as Executive Vice President, Operations and Finance, of the Reebok Brand. Prior to joining Reebok International Ltd., he was an audita partner at international accounting firm Ernst & Young LLP where he had various responsibilities including regionalfor 20 years. At Ernst & Young, Mr. Pereira was responsible for the Consumer Products practice in the Northeast Region and was the coordinating partner in charge of mergerfor Global Partners LP and acquisition
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services, regional partner in charge of bankruptcyother clients such as Bruker Corporation and insolvency services, regional partner in charge of audit services and regional partner in charge of retail industry services.Au Bon Pain. Mr. Watchmaker also serves asPereira has been a director and the chairmember of the audit committeeAmerican Institute of American Biltrite Inc.Certified Public Accountants, and he currently serves on the Boards of Roche Bros. Supermarkets Co. and Civic Capital Group LLC. Mr. Watchmaker's broad auditPereira is a graduate of the University of Massachusetts Amherst and accounting experience, as well as his significant corporate and financial experience, make him a valuable memberpresently serves on the Business Advisory Council for the Isenberg School of our board of directors.Management.
John T. Hailer was elected to serve as a director of our general partner and as a member of the conflicts, compensation and audit committees of the board of directors of our general partner in July 2018. In September 2020, he was designated co-chair of the conflicts committee. He has beenis President of the 1251 Asset Management division of 1251 Capital Group, a Boston-based financial services company that owns a concentrated group of companies in the asset management and insurance sectors. Prior to joining 1251 Capital Group, he spent more than 18 years at Natixis Investment Managers (formerly Natixis Global Asset Management; “Natixis”) and joined that firm in 1999. Mr. Hailer formerly served as Natixis’ President and Chief Executive Officer for the Americas and Asia, where he helped that company strategically reposition as a global solutions provider and grow to become one of the world’s largest asset managers. Before joining Natixis Investment Managers, Mr. Hailer was responsible for new business development in North and Latin America at Fidelity Investments Institutional Services Company and was director of retail business development for Putnam Investments. He serves as a trustee on several other boards including Boston Medical Center
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and the Boston Public Library. Mr. Hailer also serves as the Chairman of the Board for each of the New England Council and the Back Bay Association. Mr. Hailer previously served as a member of Beloit College’s Board of Trustees. Mr. Hailer’s broad experience in the financial services industry, as well as his significant capital markets and financial experience, will make him a valuable member of our board of directors.
RobertW. Owens was elected to serve as a director of our general partner and as a member of the conflicts, compensation and audit committees of the board of directors of our general partner in October 2020. On January 1, 2022, he was designated chair of the compensation committee. He has more than 40 years of experience in the energy industry. He served as President and Chief Executive Officer of Sunoco LP (“Sunoco”) from 2012 until his retirement in 2017, and as a member of the board of directors of Sunoco from 2014 through 2018. Mr. Owens helped successfully grow Sunoco through a series of strategic transactions, including the acquisition of Susser Holdings Corporation. Prior to joining Sunoco in 1997, he served in executive roles for Ultramar Diamond Shamrock Corporation, Amerada Hess Corporation and Mobil Oil Corporation. Mr. Owens served as a member of the board of directors of Philadelphia Energy Solutions, Inc. (“PES”) from 2012 through the sales of the PES refinery to Hilco Redevelopment Partners in June 2020. Mr. Owens’ executive leadership experience and governance expertise, built over more than four decades in diverse aspects of the energy industry, make him well qualified to serve as a director of our general partner.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires directors and executive officers of our general partner and persons who beneficially own more than 10% of a class of our equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (“Reporting Persons”) to file certain reports with the SEC and the NYSE concerning their beneficial ownership of such securities. Based solely upon a review of the copies of reports on Forms 3, 4 and 5 and amendments thereto furnished to us, or written representations that no reports on Form 5 were required, we believe that all Reporting Persons complied with all Section 16(a) filing requirements in the year ended December 31, 2018.2021, with the exception of (i) three Form 3s filed on behalf of Gregory B. Hanson, Jeremy Langhorn and Jaime Pereira due to delays in obtaining SEC codes for these reporting persons, and (ii) one Form 4 filed on behalf of Eric Slifka with respect to a transfer of common units from a non-reporting person into certain family trusts for which Mr. Slifka serves as trustee.
Executive Sessions
The board of directors of our general partner holds executive sessions for the non‑managementnon-management directors on a regular basis without management present. Since the non‑managementnon-management directors include directors who are not independent directors, the independent directors also meet in separate executive sessions without the other directors or management at least once each year to discuss such matters as the independent directors consider appropriate. In addition, any director may call for an executive session of non‑managementnon-management or independent directors at any board meeting. A majority of the independent directors selects a presiding director for any such executive session.
Communications with Unitholders, Employees and Others
Unitholders, employees and other interested persons who wish to communicate with the board of directors of our general partner, non‑managementnon-management or independent directors as a group, a committee of the board or a specific director may do so by transmitting correspondence addressed to the Board of Directors, Name of Director, Group or Committee, c/o Corporate Secretary, Global Partners LP, P.O. Box 9161, 800 South Street, Suite 500, Waltham, MA 02454‑9161,02454-9161, Fax: 781‑398‑9211.781-398-9211.
Letters addressed to the board of directors of our general partner in general will be reviewed by the corporate secretary and relayed to the chairman of the board or the chair of the appropriate committee. Letters addressed to the non‑managementnon-management or independent directors in general will be relayed unopened to the chair of the audit committee. Letters addressed to a committee of the board of directors or a specific director will be relayed unopened to the chair of the committee or the specific director to whom they are addressed. All letters regarding accounting, accounting policies, internal accounting controls and procedures, auditing matters, financial reporting processes or disclosure controls and procedures are to be forwarded by the recipient director to the chair of the audit committee.
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Code of Ethics
Our general partner has adopted a code of business conduct and ethics that applies to all officers, directors and employees of our general partner, including the principal executive officer, principal financial officer and principal accounting officer, and to our subsidiaries and their officers, directors and employees.
A copy of the code of business conduct and ethics is available on our website at www.globalp.com or may be obtained without charge upon written request to the General Counsel at: Global Partners LP, P.O. Box 9161, 800 South Street, Suite 500, Waltham, MA 02454‑9161.02454-9161.
Corporate Governance Matters
The NYSE requires the Chief Executive Officer of each listed company to certify annually that he is not aware of any violation by the company of the NYSE corporate governance listing standards as of the date of the certification, qualifying the certification to the extent necessary. The Chief Executive Officer of our general partner provided such certification to the NYSE in 2018.2021.
The certifications of our general partner’s Chief Executive Officer and Chief Financial Officer required by the Securities Exchange Act of 1934 are included as exhibits to this Annual Report on Form 10‑K.10-K.
Item 11. Executive Compensation.
All of our executive officers and substantially all of our employees are employed by our general partner, except for our gasoline station and convenience store employees who are employed by Global Montello Group Corp. (“GMG”), and certain union personnel. Our general partner does not receive any management fee or other compensation for its management of Global Partners LP. Our general partner and its affiliates are reimbursed for expenses incurred on our behalf. These expenses include the costs of employee, executive officer and director compensation and benefits properly allocable to Global Partners LP. Our partnership agreement provides that our general partner will determine the expenses that are allocable to Global Partners LP.
Compensation Discussion and Analysis
We are managed and operated by the executive officers of our general partner. Executive officers of our general partner receive compensation in the form of base salaries, short-term incentive awards (contractual and/or discretionary) and long-term incentive awards. They also are eligible to participate in employee benefit plans and arrangements sponsored by our general partner or its affiliates, including plans that may be established by our general partner or its affiliates in the future. Our named executive officers (defined below) serve as executive officers of our general partner and each of our wholly-owned subsidiaries. The compensation described herein reflects their total compensation for services to us, our general partner and our subsidiaries.
Our “named executive officers” include (i) Mr. Eric Slifka, our Chief Executive Officer (“CEO”),; (ii) Mr. Gregory B. Hanson, our Chief Financial Officer (“CFO”) and Ms. Daphne H. Foster, our Chief Financial Officer (“CFO”), Mr. Mark A. Romaine, our Chief Operating Officer (“COO”), andformer CFO; (iii) the three most highly compensated executive officers of our general partner other than our CEO and CFO and COO during 2018,2021, who were Mr. Andrew Slifka,Mark A. Romaine, our Executive Vice PresidentChief Operating Officer (“COO”), Mr. Jeremy (Jez) Langhorn, our Chief Human Resources Officer and PresidentMr. Matthew Spencer, our Chief Accounting Officer; and (iv) two former executive officers of our Gasoline Distribution and Station Operations Division (“GDSO”),general partner who were not serving at the end of calendar year 2021, Mr. Edward J. Faneuil, our former Executive Vice President, General Counsel and Secretary, and Mr. Matthew Spencer,Andrew Slifka, our Chief Accounting Officer.former Executive Vice President and President of GDSO Division. Each of Messrs. Eric Slifka, Andrew Slifka, Faneuil and Romaine and Ms. Fosterour named executive officers had an employment agreement with our general partner during 2018.2021.
The compensation committee of the board of directors of our general partner (the “Compensation Committee”) has direct responsibility for the compensation of our CEO based upon (i) contractual obligations pursuant to any employment agreement or arrangement between our CEO and our general partner, and (ii) compensation parameters established by the Compensation Committee with respect to salary adjustments, incentive plans and discretionary
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bonuses, if any. The Compensation Committee also has oversight and approval authority for the compensation of our named executive officers other than our CEO based upon our CEO's recommendations, including awards under any
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incentive plans in which the named executive officers participate, and our general partner's contractual obligations pursuant to any employment agreements or arrangements with our named executive officers.
Compensation Objectives
The objectives of our compensation program with respect to our named executive officers are to attract, engage and retain individuals with the requisite knowledge, experience and skill sets required for our future success. Our compensation program is intended to motivate and inspire employee behavior that fosters high performance, and to support our overall business objectives. To achieve these objectives, we aim to provide each named executive officer with a competitive total compensation program. We currently utilize the following compensation components:
| Base salaries and benefits designed to attract and retain high caliber employees; |
| Short-term, performance-based incentives and discretionary bonus awards designed to focus employees on key business objectives for a particular |
| Long-term, equity-based and/or cash incentive awards designed to support the achievement of our long-term business objectives and the retention of key personnel. |
Compensation Methodology
Our general partner uses a third-party compensation consultant to study and supply market compensation data and to assist our management and the Compensation Committee in formulating competitive compensation plans and arrangements. The Compensation Committee retained BDO USA, LLP (“BDO”) as its outside compensation consultant during 2018.for 2021.
Under our executive compensation structure, our goal is for our named executive officers’ total compensation to fall between the median (50th percentile) and 75th percentile of competitive total compensation levels, as identified by BDO's benchmarking results, following any adjustments made to marketplace pay levels in order to account for significant responsibilities that are assigned to our named executive officers and that exceed the scope of responsibilities generally associated with the external benchmark positions to which they are compared, specifically:
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compared. Overall Partnership performance and individual performance may cause the targeted compensation levels to be adjusted up or down accordingly.
BDO worked with the Compensation Committee in 20182021 to (i) review and update our reference group of peer companies to provide metrics to be used in thefor performance assessment of our performancepurposes; (ii) help determine compensation ranges and to establish competitive compensation plans for our named executive officers. In addition, BDO assisted the Compensation Committee in (i) identifying appropriate terms of a new three-year employment agreement for our CEO andaward opportunities for each of our other named executive officers; (ii) developing a new long-term incentive plan, includingofficer positions; (iii) review and consider the design of, create the payment grid for, and update performance metrics,targets and the determination of awards opportunitiesrelated award levels for our named executive officers and plan administration procedures; and (iii) preparing the performance targets and associated levels of payouts contained inunder, our general partner’s short-term incentive plan (the “STIP”) for 2021; (iv) assist with updated information for new three-year employment agreements for our named executive officers (the “STIP”)officers; (v) assist with compensation information related to the 2021 Form 10-K and support discussions between the Compensation Committee and our CEO; (vi) brief new Compensation Committee members with respect to the details, philosophy and methodology of our compensation program and (vii) assist with determination of compensation for 2018.independent directors. The plan design of our 20192021 STIP, which is comprised of a 50% performance-based component and a 50% discretionary component, is the same as that of our 20182020 STIP, except for adjustments to the individual performance target levels thereunder.
During 2017, BDO worked with the Compensation Committee to review and update (i) our reference group of
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peer companies for compensation benchmarking purposes; (ii) the methodology for measuring our short-term performance; and (iii) the performance targets and associated levels of payouts previously contained in our 2017 STIP.
During 2016,2020, BDO worked with the Compensation Committee to (i) developreview and maintain aupdate our reference group of peer companies for performance assessment purposes; (ii) help determine compensation databaseranges and templateaward opportunities for use in assessingeach of our named executive officer positions; (iii) review and reporting long-term incentive plan awardsconsider the design of, create the payment grid for, and update performance targets and related award levels for our named executive officers under, our general partner’s STIP for 2020; (iv) update levels of compensation for our independent board members based on peer group review; (v) assist with compensation information related to the 2020 Form 10-K and directors;support discussions between the Compensation Committee and our CEO; and (iv) brief new Compensation Committee members with respect to the details, philosophy and methodology of our compensation program.
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During 2019, BDO worked with the Compensation Committee to (i) review and update our reference group of peer companies for analysis of metrics used in the assessment of our performance; (ii) help determine the award opportunities provided to our named executive officers; (iii) assist with compensation information related to the 2019 Form 10-K; (iv) update information on methods and levels of compensation for our independent board members; (v) assist with updated information for a new three-year employment agreement for our CEO; (vi) measure our performance and that of our CEO in order to determine what our CEO earned under the long-term performance-based cash incentive plan under his 2018 employment agreement; and (vii) provide updated performance targets and related award levels for our general partner’s 2016 STIP to ensure that such plan was fully aligned withnamed executive officers under our critical business objectives; (iii) research and prepare a competitive compensation assessment for our CFO position and a competitive assessment of methods and levels of compensation for independent board members; and (iv) assist with compensation information related to the 2016 Form 10-K.2019 STIP.
Highlights of Compensation Program Policies for Named Executive Officers
| A significant portion of total direct compensation for our named executive officers is variable, dependent upon the Partnership’s actual performance (e.g., short-term, performance-based incentives and long-term, cash-based or equity-based incentives); |
| Repricing of options and unit appreciation rights is prohibited unless approved by unitholders; and |
| The Compensation Committee engages the assistance of an independent compensation consultant. |
Elements of Compensation
Our executive compensation structure utilizes complementary components to align our compensation with the needs of our business and to provide for desired levels of pay that competitively compensate our executive management personnel. We administer the program on the basis of total compensation. As described above, our goal is to target total compensation levels (i.e., base salary plus short- and long-term incentives) for our named executive officers to fall between the median (50th percentile) and 75th percentile compensation levels in our competitive marketplace. When we perform above or below our performance goals, we expect that result will be reflected in our compensation levels.
The elements of the 20182021 executive officer compensation of our general partner were base salaries, discretionary bonuses, short-term incentive awards, long-term cash incentive awards, retirement, deferred compensation and health benefits, and perquisites consistent with those provided to executive officers generally and as may be approved by the Compensation Committee from time to time.
A description of the components of the compensation program and principles used to guide their administration appears below:
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Base Salaries
Each named executive officer’s base salary is a fixed component of compensation for each year. Base salary is designed to compensate executives for the responsibility of the level of the position they hold and sustained individual performance (including experience, scope of responsibility, results achieved and future potential). Historically, the base salaries for our named executive officers with employment agreements have been set by the terms of their respective employment agreements in effect from time to time while the base salary for the named executive officer without an employment agreement has been set in accordance with our CEO’s recommendation, using salary range information from BDO, and as approved by the Compensation Committee. The annualized base salaries in effect as of the end of 20182021 for our named executive officers were as follows: $800,000$1,000,000 for Mr. Eric Slifka, $500,000$575,000 for Mr. Romaine; $450,000$400,000 for Mr. Faneuil; $450,000 for Ms. Foster; $425,000Hanson; $475,000 for Mr. Andrew Slifka;Langhorn and $265,000$300,000 for Mr. Spencer.
Short-Term Incentive Plans
Our general partner established a cash bonus pool for 20182021 to fund short-term incentive awards for each of our named executive officers. Target awards under our general partner’s 20182021 STIP included a performance-based component, for which 50% of the cash bonus pool was available (the “STIP Performance Component”), and a discretionary component, for which the other 50% of the cash bonus pool was available (the “STIP Discretionary Component”). Incentive awards earned under the 20182021 STIP were based on the Partnership’s actual performance in
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relation to a specified objective for distributable cash flow established by the Compensation Committee in March 20182021 (the “DCF objective”). Under the 20182021 STIP, for purposes of determining whether a specified target was achieved, “distributable cash flow” (a non-GAAP financial measure used by management) means our net income plus depreciation and amortization, less our maintenance capital expenditures (“DCF”), as adjusted by the Compensation Committee in its discretion to account for unusual, one-time factors that occurred during the year and could have increased or decreased DCF. DCF is discussed under “Results of Operations—Evaluating Our Results of Operations” and reconciled to its most directly comparable GAAP financial measures under “Results of Operations—Key Performance Indicators” in Part II, Item 7, “Management's Discussion and Analysis of Financial Conditions and Results of Operations.”
Under the 20182021 STIP, each of our named executive officers was assigned an incentive target value expressed as a percentage of his or her base salary. The 20182021 incentive target values were: 100% (or $800,000)$1,000,000) for Mr. Eric Slifka; 100% (or $500,000)$575,000) for Mr. Romaine; 100% (or $450,000) for Mr. Faneuil; 100% (or $450,000) for Ms. Foster; 71%75% (or $300,000) for Mr. Andrew Slifka; and 75.5%Hanson; 100% (or $200,000)$475,000) for Mr. Spencer.Langhorn; 100% (or $300,000) for Mr. Spencer; 100% (or $500,000) for Ms. Foster; 100% (or $500,000) for Mr. Faneuil; and 100% (or $475,000) for Mr. Andrew Slifka. 50% of the incentive target value for each named executive officer was allocated to his or her STIP Performance Component and 50% was allocated to his or her STIP Discretionary Component.
STIP Performance Component (50% of the incentive target value).—Under the terms of the 20182021 STIP, 100% of the STIP Performance Component is earned when the DCF objective is achieved. However, the 20182021 STIP also provides for an increased payout under the STIP Performance Component when the DCF objective is exceeded, a reduced payout under the STIP Performance Component when the DCF objective is not achieved but exceeds a certain DCF minimum threshold, and no payout if the STIP Performance Component minimum threshold is not achieved. Such increases and reductions in payouts are determined in accordance with an award payout grid adopted by the Compensation Committee at the time that the 20182021 STIP was established. In general, DCF must exceed a minimum of 79.4%80% of the DCF objective must have been achieved before participants earn any portion of the STIP Performance Component. Under the 20182021 STIP, a participant’s incentive opportunity increases to a maximum of 200% of the STIP Performance Component at 120.4%120% of the DCF objective and is determined on a quantitative basis solely based on the Partnership’s actual DCF for 2018.2021. In 2018,2021, the Partnership achieved DCF as adjusted, said adjustment having been approved by the Compensation Committee, of $124.7$120,900,000 million, or 127%120.9% of the DCF objective set by the Compensation Committee for 2018.2021. Accordingly, our named executive officers who held their positions as of December 31, 2021 were entitled to receive 200% of their respective STIP Performance Components, specifically as follows: $800,000$1,000,000 for Mr. Eric Slifka; $500,000$575,000 for Mr. Romaine; $450,000$200,000 for Mr. Faneuil; $450,000Hanson; $332,500 for Ms. Foster;Mr. Langhorn; and $300,000 for Mr. Spencer. Ms. Foster and Messrs. Faneuil and Andrew Slifka;Slifka were not entitled to receive their STIP Performance Components due to the termination of their employment during 2021. For Mr. Hanson, the amount of the award under the STIP Performance Component was calculated based on his base salary (as opposed to his STIP target) and $200,000prorated to account for the partial year for which he held the positions of Treasurer and Chief Financial Officer. For Mr. Spencer. Langhorn, the amount of the award under the STIP Performance Component was prorated for the partial year for which he held his position.
STIP Discretionary Component (50% of the incentive target value).—The STIP Discretionary Component is intended to be used as a discretionary award, allowing the Compensation Committee to analyze other factors that it may elect to use for determining the STIP Discretionary Component. Such factors may include, without limitation, market
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factors and significant acquisitions, developments and ventures accomplished by us, management of our business in the face of adverse market conditions and, as may be applicable, the contributions of any or all of the named executive officers. Mr. Eric Slifka’s evaluation of our named executive officers’ performance in 20182021 included the recognition that their individual and collective performanceperformances were excellent;excellent, especially in light of the day-to-day operational and procedural changes that theirwere required in response to the COVID-19 pandemic including, without limitation, emphasizing teamwork across departments and enhancing communications to facilitate working remotely. Mr. Slifka also applauded our named executive officers’ continuing efforts have positionedto position us to realize the benefits of a downstream integrated model, working together to expand the use of our terminals and logistics capabilities, execute well on strategic acquisitions, take advantage of market opportunities, and tighten operations while reducing leverage, continuing to ensure ample liquidity, generating sufficient cash flow to cover our distributions, and maintaining flexibility to invest in assets fundamental to our growth objectives.
In considering whether, and in what amount(s), to grant any or all of our named executive officers 20182021 STIP Discretionary Component awards, the Compensation Committee recognized that our business performance in 2018 exceeded2021 was
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strong, with our full-year expectations,leadership team successfully managing external challenges and fulfilling many important initiatives. The Compensation Committee noted that our named executive officers individually and collectively have continued to effectively oversee development of activities and staffing consistent with our strategies and growth objectives. Our full-year results were our best results since our formation. Our GDSO segment performed solidly,objectives, and we experienced improved product marginsthat they encourage the identification of and refined product throughput in our Wholesale segment.response to new opportunities as they arise. The following initiatives were undertaken by us under the leadership of Mr. Eric Slifka and executed by our named executive officers to strategically position us by strengtheningcontinue to strengthen our balance sheet and enhancingenhance our liquidity in light of the uncertainties surrounding the COVID-19 pandemic and in order to be ablein a position to invest in opportunities fundamental to our growth strategy, including the acquisition of retail sites that leverage our integrated network of terminals and expand our footprint and enable us to benefit from economies of scale in the purchase of fuel and convenience store merchandise. These strategicstrategy. Our 2021 initiatives included:
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| On May 5, 2021, we amended our credit agreement to, among other things, (i) increase the commitment under the working capital revolving credit facility to $800.0 million and the commitment under the revolving credit facility to $450.0 million; (ii) extend the maturity date to May 6, 2024; and (iii) decrease the applicable rate under the working capital credit facility by 0.125%. |
● | On June 7, 2021, we entered into an asset purchase agreement to expand by acquiring retail gasoline and convenience store assets from Sherman V. Allen, Inc. and its affiliates. The acquisition closed on August 10, 2021 and included 13 company operated convenience stores and commissioned agent locations in Vermont, New Hampshire, Massachusetts and New York. |
● | On September 24, 2021, we entered into an asset purchase agreement to expand by acquiring retail gasoline and convenience store assets from Miller Oil Co., Inc. and its affiliates. The acquisition closed on February 1, 2022 and included 21 company operated Miller’s Neighborhood Market convenience stores and 2 owned or leased fuel sites, all located in Virginia and 34 fuel supply-only sites located in Virginia and North Carolina. |
● | On November 24, 2021, we entered into a purchase and sale agreement to sell our terminal located in Boston Harbor in Revere, Massachusetts for a purchase price of $150.0 million in cash which is estimated to result in the realization by the Partnership of proceeds in excess of $100.0 million. |
● | On November 29, 2021, we exercised the accordion feature under our credit agreement to increase the commitment under the working capital revolving credit facility by $100.0 million to $900.0 million. |
● | In December 2021, we entered into a consent decree with the United States Federal Trade Commission to clear the way for the purchase of convenience store and gas station assets from Jetway Corporation and its subsidiaries, Wheels of CT, Inc. and Consumers Petroleum of Connecticut, Inc., pursuant to a Purchase and Sale Agreement date December 9, 2020. The acquisition closed on January 25, 2022 and included 27 company operated convenience stores and gas stations and 24 supply only gas stations. |
● | We conducted extensive internal and external searches to appoint 4 new executives over the last 12 months–Chief Financial Officer, Chief Legal Officer, Chief Information Officer and Chief Human Resources Officer. |
● | To support the hiring and retention of great people across our Retail, Terminal and Corporate businesses, we appointed a Head of Diversity, Equity and Inclusion and adopted a 3-year DEI strategy. |
● | Continuing commitment to invest in our infrastructure. |
● | Ongoing |
Taking into account Mr. Eric Slifka’s assessment, the Partnership’s results of operations for 2018,2021, as well as the Compensation Committee’s review of the individual performance of each of our named executive officers in 2018, 2021, the Compensation Committee awarded our named executive officers 200% of their respective STIP Discretionary Components for 2018,2021, specifically as follows: $800,000specifically as follows: $1,000,000 for Mr. Eric Slifka; $500,000$575,000 for
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Mr. Romaine; $200,000 for Mr. Romaine; $450,000Hanson; $332,500 for Mr. Faneuil; $450,000 for Ms. Foster;Langhorn; and $300,000 for Mr. Andrew Slifka;Spencer. For Mr. Hanson, the amount of the award under the STIP Discretionary Component was calculated based on his base salary (as opposed to his STIP target) and $200,000prorated to account for the partial year for which he held the positions of Treasurer and Chief Financial Officer. For Mr. Spencer.Langhorn, the amount of the award under the STIP Discretionary Component was prorated for the partial year for which he held his position.
2019 Short-Term Incentive Plan.—In 2019,addition, the Compensation Committee withpaid a discretionary amount equal to $1,000,000 under the assistance of BDO, used our 2019 business plan as a basis for creating the 2019 Short-Term Incentive Plan. The 20192021 STIP establishes a target incentive percentage for each participant ranging from 71% to 100% of base salary representing the same target percentages used during 2018 for each of Mr. Faneuil and Ms. Foster in light of their service during 2021 prior to the named executive officers. Awards under the 2019 STIP may range from 0% to 200%termination of each participant’s target incentive percentage. The weighting of the STIP Performance Component and STIP Discretionary Component in the 2019 STIP remain 50% and 50%, respectively, the same as in the 2018 STIP.their employment.
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Annual Bonuses—Discretionary
Our compensation program for named executive officers contains a provision for the Compensation Committee to award a discretionary bonus to recognize significant contributions made by an executive in the course of the year. These are one-time awards and not associated with any of our incentive plans. The Compensation Committee may make discretionary bonus awards to our CEO. Our CEO may also recommend discretionary bonus awards for any or all other named executive officers for consideration and approval by the Compensation Committee for similar purposes.
The Compensation Committee did not award any discretionary bonus payments under this program in respect of our named executive officers’ service during 2018, 20172021 or 2016.2019. The Compensation Committee awarded Messrs. Eric Slifka, Romaine and Faneuil, Ms. Foster and Messrs. Hanson and Spencer discretionary bonuses in the amounts of $986,000, $569,000, $495,000, $495,000, $250,000 and $200,000, respectively, in respect of their service during 2020.
Long-Term Cash Incentive Awards
2018 Long-Term Cash Incentive Plan—On October 8, 2018, the board of directors of our general partner authorized (i) thePlans—The Global Partners LP 2018 Long-Term Cash Incentive Plan (as amended from time to time, the “LTCIP”), which allows the board of directors of our general partner or the Compensation Committee to grant cash incentive awards (collectively, the “LTCIP Awards”) to independent directors of our general partner or employees (including our named executive officers) who provide services to the Partnership or its affiliate (including our named executive officers), and (ii) under the LTCIP, the grant of cash incentive awards (collectively, the “LTCIP Awards”) pursuant to long-term cash incentive plan award agreements (each, a “LTCIP Award Agreement”) to each of our named executive officersaffiliates in recognition of their respective contributions to our 2017 financial results. The LTCIP Awards granted in 2018 to our named executive officers (each, a “2018 LTCIP Award”) consisted of the following amounts: $2,700,000 for Mr. Eric Slifka; $900,000 for Mr. Romaine; $750,000 for Mr. Faneuil; $750,000 for Ms. Foster; $400,000 for Mr. Andrew Slifka; and $275,000 for Mr. Spencer. Each 2018 LTCIP Award is subject to the following vesting schedule: 20% of the award vests on October 1, 2021, 30% of the award vests on October 1, 2022 and 50% of the award vests on October 1, 2023.
Once a portion of a 2018an LTCIP Award vests, it is paid to the recipient as soon as practicable thereafter.
If a named executive officer’s employment with our general partner is terminated for any reason, the Compensation Committee will generally have sole discretion to determine whether any or all of the unvested portion of such named executive officer’s LTCIP Award(s) shall become vested, forfeited, or shall continue to vest pursuant to its terms as if the named executive officer’s service had continued through the last applicable vesting date. Upon the occurrence of a Change of Control (as defined in the LTCIP), the unvested portion of such named executive officer’s LTCIP Award(s) shall immediately become fully vested.
2018 On October 22, 2021, the board of directors of our general partner granted awards under the LTCIP to our named executive officers (each, a “2021 LTCIP Award”) in the following amounts: $3,500,000 for Mr. Eric Slifka; $1,300,000 for Mr. Romaine; and $600,000 for Mr. Spencer. Each 2021 LTCIP Award is subject to the following vesting schedule: 33.4% of the award vests on July 10, 2023, 33.3% of the award vests on July 10, 2024 and 33.3% of the award vests on July 10, 2025, subject to each named executive officer’s continued employment through such vesting dates.
On August 25, 2020, the board of directors of our general partner granted awards under the LTCIP to our named executive officers (each, a “2020 LTCIP Award”) in the following amounts: $3,300,000 for Mr. Eric Slifka; $1,200,000 for Mr. Romaine; $400,000 for Mr. Spencer; $1,050,000 for Mr. Faneuil; and $1,050,000 for Ms. Foster. Each 2020 LTCIP Award is subject to the following vesting schedule: 33.4% of the award vests on September 25, 2022, 33.3% of the award vests on September 25, 2023 and 33.3% of the award vests on September 25, 2024, subject to each named executive officer’s continued employment through such vesting dates.
On August 7, 2019, the board of directors of our general partner granted awards under the LTCIP to our named executive officers (each, a “2019 LTCIP Award”) in the following amounts: $1,200,000 for Mr. Eric Slifka; $1,000,000
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for Mr. Romaine; $275,000 for Mr. Spencer; $850,000 for Mr. Faneuil; and $850,000 for Ms. Foster. Each 2019 LTCIP Award is subject to the following vesting schedule: 33.4% of the award vested on August 10, 2021, 33.3% of the award vests on August 10, 2022 and 33.3% of the award vests on August 10, 2023, subject to each named executive officer’s continued employment through such vesting dates.
Long-Term Performance-Based Cash Incentive Plan.Plan Awards for Mr. Eric Slifka—Mr. Eric Slifka’s prior employment agreement with our general partner that was in effect during 2018 and January 2019 included a provision for a long-term performance-based cash incentive plan covering the period from March 29, 2018 through March 29, 2019 (the “2018
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Long-Term Performance-Based Cash Incentive Plan”). The 2018 Long-Term Performance-Based Cash Incentive Plan was designed with two separate components: 50% of the award is based upon the Partnership’s total unitholder (or shareholder) return (“TSR”), as compared against the TSRs of the individual entities comprising two groups of constituent companies (the “Constituent Companies”), for a defined twelve month period of time, and 50% of the award is discretionary, as determined by the Compensation Committee based upon its evaluation of the Mr. Eric Slifka’s performance and such external factors as the Compensation Committee deems appropriate. On April 12, 2019, the Compensation Committee determined that Mr. Eric Slifka potentially could earn an amountearned $2,025,000 under the performance component ranging fromand $675,000 to $2,025,000, and an amount under the discretionary component, ranging from $0 to $2,025,000, for a maximum potential aggregate total award of $4,050,000. Amounts$2,700,000. The first of two equal installments of amounts earned pursuant to the 2018 Long-Term Performance-Based Cash Incentive Plan are generally eligible to bewas paid in two equal installmentsJanuary 2020; the second such installment was paid in each of January 2020 and 2021, subject to Mr. Eric Slifka’s continued employment on those dates.February 2021.
On February 4, 2019, our general partner and Mr. Eric Slifka entered into a new employment agreement, effective as of February 1, 2019, that superseded and replaced Mr. Eric Slifka’s prior employment agreement with our general partner (except for the survival of our general partner’s payment obligation of any amounts due under the STIP, the LTCIP and the 2018 Long-Term Performance-Based Cash Incentive Plan). Under the new employment agreement, Mr. Eric Slifka will be eligible to receive certain long-term incentive plan awards for a particular year, as determined by the Compensation Committee in accordance with the methodology set forth in such new employment agreement.
Long-Term Equity Incentive Awards
2017 Phantom Unit Awards.—On August 16, 2017, the Compensation Committee approved the grant of phantom unit awards (collectively, the “2017 Phantom Unit Awards”) pursuant to phantom unit award agreements (each, a “Phantom Unit Agreement”) under the Global Partners LP Long-Term Incentive Plan (as amended from time to time, the “LTIP”) to each of our named executive officers who had an employment agreement with us during 2017. Each 2017 Phantom Unit Award is subject to the following vesting schedule: 25% of the phantom units subject to such award vestsvested on August 1, 2020, 35% of the phantom units subject to such award vestsvested on August 1, 2021 and 40% of the phantom units subject to such award vestswill vest on August 1, 2022.
If a named executive officer’s employment with our general partner is terminated (a) by our general partner for Cause (as defined in such named executive officer’s employment agreement), or (b) by the named executive officer voluntarily (other than due to retirement), all unvested phantom units subject to such named executive officer’s 2017 Phantom Unit Award will immediately be forfeited without payment. If a named executive officer’s employment with our general partner is terminated for any other reason, the Compensation Committee will generally have sole discretion to determine whether any or all of the unvested phantom units subject to such named executive officer’s 2017 Phantom Unit Award will become vested or forfeited. Upon the occurrence of a Change of Control (as defined in a named executive officer’s employment agreement), all unvested phantom units subject to such named executive officer’s 2017 Phantom Unit Award will immediately become vested.
Upon vesting of the 2017 Phantom Unit Awards, phantom units will be settled in our common units unless the Compensation Committee decides, in its sole discretion, to settle such phantom units in cash or a combination of common units and cash.
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Retirement and Health Benefits; Perquisites
Global Partners 401(k) Savings and Profit Sharing Plan
The Global Partners LP 401(k) Savings and Profit Sharing Plan (the “Global 401(k) Plan”) permits all eligible employees to make voluntary pre-tax contributions to the plan, subject to applicable tax limitations. The Global 401(k) Plan provides for employer matching contributions equal to 100% of elective deferrals up to the first 3% of eligible compensation plus 50% of elective deferrals up to the next 2% of eligible compensation. In 2018,2020, all employees were eligible to participate in the Global 401(k) Plan other than employees who were (1) not yet 21 years of age, (2) covered by a collective bargaining agreement that does not provide for employees to be covered by the Global 401(k) Plan or (3) nonresident aliens. New employees may begin to contribute to the Global 401(k) Plan on the first day of the month following their respective dates of hire, although they are not eligible to receive matching payments under the Global 401(k) Plan until they have been employed by our general partner or one of our operating subsidiaries for six months. Eligible employees may elect to contribute up to 100% of their compensation to the plan for each plan year. Employee contributions are subject to annual dollar limitations, which are adjusted periodically for changes in the cost of living. Participants in the plan are always fully vested in any matching contributions under the plan; however, discretionary profit sharing contributions are subject to a six-year vesting schedule. The plan is intended to be tax-qualified under Section 401(a) of the Code so that contributions to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan, and so that our general partner's contributions, if any, will be deductible when made.
Pension Benefits
Each of our named executive officers, other than Mr.Messrs. Hanson, Langhorn and Spencer, is eligible to participate in our general partner's pension plan in accordance with our general partner’s policies and on the same general basis as other employees of our general partner. Under our general partner’s pension plan, an employee becomes fully vested in his or her pension benefits after completing five years of service or, if earlier, upon termination due to death or disability. Please read “Other Benefits—Pension Benefits” for information with respect to eligibility standards and calculations of estimated annual pension benefits payable upon retirement under the pension plan. Our general partner’s pension plan was frozen on December 31, 2009.
Prior to March 1, 2012, Mr. Andrew Slifka was employed by Alliance Energy LLC (“Alliance”) and participates in the Alliance Energy LLC Pension Plan in accordance with Alliance’s policies and on the same general basis as other employees of Alliance not excluded by the terms of the plan. On March 1, 2012, sponsorship of the Alliance Energy LLC Pension Plan was transferred to GMG and the plan was renamed as the GMG Pension Plan (as defined and described below under “Other Benefits—Pension Benefits”). An employee is fully vested in benefits under the GMG Pension Plan after completing five years of service or, if earlier, upon termination due to death or disability. Please read “Other Benefits—Pension Benefits” for information with respect to eligibility standards and calculations of estimated annual pension benefits payable upon retirement under the GMG Pension Plan. The GMG Pension Plan was frozen on May 15, 2012.
Other Benefits
Each of our named executive officers is eligible to participate in our general partner's health insurance plans and other employee benefit plans in accordance with our general partner’s policies and on the same general basis as other employees of our general partner.
Additional perquisites for our named executive officers may include payment of premiums for long-term disability insurance, automobile fringe benefits, club membership dues and payment of fees for professional financial planning, tax and/or legal advice.
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Employment Agreements
Each of Messrs.Our CEO, Mr. Eric Slifka, Andrew Slifka, Faneuil and Romaine and Ms. Foster had anentered into a new two-year, eleven-month employment agreement with our general partner effective as of February 1, 2019, the term of which was extended by its terms until April 15, 2022 to allow for finalization of new short-term and long-term incentive payment plans. Each of Messrs. Romaine and Spencer entered into a new three-year employment agreement with our general partner effective as of January 1, 2019, the term of each of which was extended by its terms until April 15, 2022 to allow for finalization of new short-term and long-term incentive payment plans. Each of Messrs. Faneuil and Andrew Slifka and Ms. Foster also entered into a new three-year employment agreement with our general partner effective as of January 1, 2019, except that such agreements were terminated upon the termination of their employment during 2018.2021. Mr. Faneuil terminated employment as a result of his death on May 17, 2021. Ms. Foster terminated employment as a result of her retirement on August 31, 2021. Mr. Andrew Slifka terminated employment as a result of his resignation on September 27, 2021. Mr. Langhorn entered into an eight-month employment agreement with our general partner effective as of April 19, 2021, the term of which
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was extended by its terms until April 15, 2022 to allow for finalization of new short-term and long-term incentive payment plans. Mr. Hanson entered into a new three-month employment agreement with our general partner effective as of September 1, 2021, the term of which was extended by amendment date as of December 31, 2021 until the earlier of (i) the date of execution of a mutually agreeable new 2022 employment agreement and (ii) April 15, 2022. We believe that the post-termination and change in control payments in the employment agreements allowed our named executive officers to focus on making business decisions that maximized our interests and the interests of our unitholders without allowing personal considerations to influence the decision-making process. Please read “Potential Payments upon Termination or Change of Control” for a discussion of the provisions in each employment agreement relating to termination, change in control and related payment obligations.
Relationship of Compensation Elements to Compensation Objectives
We use base salaries to provide financial stability and to compensate our executive officers for fulfillment of their respective job duties.
We use a short-term incentive plan with performance-based and discretionary components to align a significant portion of our executive officers'officers’ compensation with annual business performance and success, and to provide rewards and recognition for key business outcomes such as achieving increased quarterly distributions in line with our financial results, expanding our distribution, marketing and sales of petroleum products, expanding our gasoline station and convenience store assets and the geographic markets that we serve, and diversifying our product mix to enhance profitability and effectively managing our business. Short-term performance-based incentives also allow flexibility to reward performance and individual success consistent with such criteria as may be established from time to time by our CEO and the Compensation Committee.
Our long-term incentive plans (the LTIP, the LTCIP and, solely with respect to Mr. Eric Slifka, the 2018 Long-Term Performance-Based Cash Incentive Plan) provide incentives and reward eligible participants for the achievement of long-term objectives, facilitate the retention of key employees by aligning their incentives with our long-term performance, continue to make our compensation mix more competitive, and align the interests of management with those of our unitholders.
We offer a mix of traditional perquisites such as automobile fringe benefits and country/golf club memberships, and additional benefits, such as payment of professional financial planning and tax advice fees, that are tailored to address our executive officers’ individual needs, to facilitate the performance of their job duties and to be competitive with the total compensation packages available to executive officers generally.
Tax Deductibility of Compensation
With respect to the deduction limitations imposed under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), we are a limited partnership and do not meet the definition of a “corporation” under Section 162(m). Accordingly, such limitations do not apply to compensation paid to our named executive officers.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based upon such review, the related discussions and such other matters deemed relevant and appropriate by the Compensation Committee, the Compensation Committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this Form 10-K.
Kenneth I. Watchmaker (Chairman)Robert W. Owens (Chair)
John T. Hailer
Robert J. McCoolDavid McKownJaime PereiraJohn T. Hailer
March 6, 2019
February 24, 2022
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Compensation Committee Interlocks and Insider Participation
The Compensation Committee has beenis currently comprised of Robert J. McCool, David K. McKownRobert W. Owens, John T. Hailer and Jaime Pereira. Kenneth I. Watchmaker sincewas a member of the Compensation Committee from the formation of Global GP LLC. Effective July 1, 2018, John T. HailerLLC until his retirement from the board of directors of our general partner effective December 31, 2021. Jaime Pereira was appointed asto the fourthboard of directors of our general partner and became a member of the Compensation Committee.Committee effective October 25, 2021. None of the members of the Compensation Committee are officers or employees of our general partner or any of its affiliates. Mr. Alfred A.Richard Slifka has served as the Chairman of theour general partner’s board of directors of our general partner until his death onsince March 9, 2014. Mr. Richard Slifka, who12, 2014 and previously served as Vice-Chairman of our general partner’s board of directors since its inception, became Chairman effective March 12, 2014 and is an employee of Global Petroleum Corp., an entity which is owned by Mr. Richard Slifka and a trust for the beneficiaries of Mr. Alfred A. Slifka.inception. Mr. Eric Slifka has served as Vice-Chairman of our general partner’s board of directors since March 12, 2014.
Compensation of Named Executive Officers
The following table sets forth certain information with respect to compensation during 2018, 20172021, 2020 and 20162019 of our named executive officers.
Summary Compensation Table
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Name and Principal | | | | Salary | | Bonus | | Compensation | | Earnings | | Compensation | | Total | |
Position | | Year | | ($) (4) | | ($) (5) | | ($) (6) | | ($) (7) | | ($) (8)(9)(10)(11)(12) | | ($) | |
Eric Slifka |
| 2021 |
| 1,000,000 |
| — |
| 5,500,000 |
| — |
| 92,919 |
| 6,592,919 | |
President and CEO |
| 2020 |
| 1,000,000 |
| 986,000 |
| 3,350,000 |
| 123,562 |
| 109,241 |
| 5,568,803 | |
|
| 2019 |
| 1,000,000 |
| — |
| 599,150 |
| 164,449 |
| 100,008 |
| 1,863,607 | |
Gregory B. Hanson |
| 2021 |
| 292,468 |
| 250,000 |
| 400,000 |
| — |
| 42,634 |
| 985,102 | |
Chief Financial Officer |
| | | | | | | | | | | | | | |
Mark A. Romaine |
| 2021 |
| 575,000 |
| — |
| 2,450,000 |
| 2,286 |
| 42,455 |
| 3,069,741 | |
Chief Operating Officer |
| 2020 |
| 575,000 |
| 569,000 |
| 1,150,000 |
| 52,463 |
| 40,951 |
| 2,387,414 | |
| | 2019 |
| 575,000 |
| — |
| 344,511 |
| 68,892 |
| 39,409 |
| 1,027,812 | |
Matthew Spencer |
| 2021 |
| 300,000 |
| — |
| 600,000 |
| — |
| 48,655 |
| 948,655 | |
Chief Accounting Officer |
| 2020 |
| 275,000 |
| 200,000 |
| 400,000 |
| — |
| 48,573 |
| 923,573 | |
| | 2019 | | 275,000 | | — | | 119,830 | | — | | 50,321 | | 445,151 | |
Jez Langhorn |
| 2021 |
| 334,659 |
| — |
| 665,000 |
| — |
| 243,227 |
| 1,242,886 | |
Chief Human Resources Officer |
| | | | | | | | | | | | | | |
Daphne H. Foster (1) |
| 2021 |
| 375,961 |
| — |
| — |
| 785 |
| 4,711,973 |
| 5,088,719 | |
Former Chief Financial Officer |
| 2020 |
| 500,000 |
| 495,000 |
| 1,000,000 |
| 5,713 |
| 25,305 |
| 2,026,018 | |
| | 2019 |
| 500,000 |
| — |
| 299,575 |
| 8,065 |
| 25,105 |
| 832,745 | |
Edward J. Faneuil (2) |
| 2021 |
| 208,333 |
| — |
| — |
| 47,358 |
| 7,769,657 |
| 8,025,348 | |
Former EVP, General Counsel |
| 2020 |
| 500,000 |
| 495,000 |
| 1,000,000 |
| 61,410 |
| 53,468 |
| 2,109,878 | |
and Secretary |
| 2019 |
| 500,000 |
| — |
| 299,575 |
| 80,950 |
| 48,208 |
| 928,733 | |
Andrew Slifka (3) |
| 2021 |
| 405,578 |
| — |
| — |
| 8,086 |
| 94,463 |
| 508,127 | |
Former EVP and President of |
| 2020 |
| 475,000 |
| 335,000 |
| 670,000 |
| 62,300 |
| 67,582 |
| 1,609,882 | |
GDSO Division |
| 2019 |
| 475,000 |
| — |
| 200,715 |
| 84,100 |
| 62,522 |
| 822,337 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| and Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
| Non‑Equity |
| Nonqualified |
|
|
|
|
|
|
|
|
|
|
| Unit |
| Incentive Plan |
| Compensation |
| All Other |
|
|
|
Name and Principal |
|
|
| Salary |
| Awards |
| Compensation |
| Earnings |
| Compensation |
| Total |
|
Position |
| Year |
| ($) (1) |
| ($) (2) |
| ($) (3) |
| ($) (4) (5) |
| ($) (6) |
| ($) |
|
Eric Slifka |
| 2018 |
| 800,000 |
| — |
| 1,600,000 |
| — |
| 90,920 |
| 2,490,920 |
|
President and CEO |
| 2017 |
| 800,000 |
| 2,743,315 |
| 1,400,000 |
| 110,986 |
| 93,795 |
| 5,148,096 |
|
|
| 2016 |
| 800,000 |
| — |
| 400,000 |
| 44,008 |
| 65,961 |
| 1,309,969 |
|
Mark A. Romaine |
| 2018 |
| 500,000 |
| — |
| 1,000,000 |
| — |
| 42,513 |
| 1,542,513 |
|
Chief Operating Officer |
| 2017 |
| 500,000 |
| 1,062,201 |
| 900,000 |
| 45,722 |
| 45,399 |
| 2,553,322 |
|
|
| 2016 |
| 500,000 |
| — |
| 250,000 |
| 17,988 |
| 40,109 |
| 808,097 |
|
Edward J. Faneuil |
| 2018 |
| 450,000 |
| — |
| 900,000 |
| — |
| 44,338 |
| 1,394,338 |
|
EVP, General Counsel |
| 2017 |
| 450,000 |
| 850,012 |
| 815,000 |
| — |
| 51,951 |
| 2,166,963 |
|
and Secretary |
| 2016 |
| 450,000 |
| — |
| 225,000 |
| — |
| 47,466 |
| 722,466 |
|
Daphne H. Foster |
| 2018 |
| 450,000 |
| — |
| 900,000 |
| — |
| 24,905 |
| 1,374,905 |
|
Chief Financial Officer |
| 2017 |
| 450,000 |
| 902,071 |
| 815,000 |
| 6,045 |
| 33,120 |
| 2,206,236 |
|
|
| 2016 |
| 400,000 |
| — |
| 150,000 |
| 2,398 |
| 33,483 |
| 585,881 |
|
Andrew Slifka |
| 2018 |
| 425,000 |
| — |
| 600,000 |
| — |
| 55,910 |
| 1,080,910 |
|
EVP and President of |
| 2017 |
| 425,000 |
| 575,011 |
| 545,000 |
| 62,603 |
| 59,435 |
| 1,667,049 |
|
GDSO Division |
| 2016 |
| 425,000 |
| — |
| 132,500 |
| 22,695 |
| 61,645 |
| 641,840 |
|
Matthew Spencer |
| 2018 |
| 265,000 |
| — |
| 400,000 |
| — |
| 47,550 |
| 712,550 |
|
Chief Accounting Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
(2) | Mr. Faneuil ceased to serve as EVP, General Counsel and Secretary as a result of his death on May 17, 2021. |
(3) | Mr. Andrew Slifka ceased to serve as EVP and President of GDSO Division as a result of his resignation on September 27, 2021. |
(4) | Amounts reported in this column reflect the base salary earned by our named executive officers for services performed during the applicable fiscal year. |
(5) |
|
|
104
(6) |
| Amounts reported in this column reflect the bonuses paid to each of the named executive officers for services performed during |
|
|
(7) |
|
|
102
(8) |
| With respect to Mr. Eric Slifka, “All Other Compensation” for the years ended December 31, 2021, 2020 and 2019 includes, among other things, (a) club membership dues, and (b) professional financial planning and tax advice fees, paid by us in the amounts of $23,518 and $26,700, respectively, for 2021; $20,814 and $33,550, respectively, for 2020; and $31,200 and $25,427, respectively, for 2019. The amounts in this column for |
(9) | With respect to Mr. Langhorn, “All Other Compensation” for 2021 includes payment of $219,612 for relocation expenses. |
(10) | With respect to Ms. Foster, “All Other Compensation” for 2021 includes (a) a $2,810,000 bonus awarded to Ms. Foster by the Compensation Committee in recognition of her years of service to the Partnership and (b) a $1,750,000 bonus awarded to Ms. Foster by the Compensation Committee in lieu of long-term cash incentive awards under the LTCIP for calendar years 2020 and 2021. |
(11) | With respect to Mr. Faneuil, “All Other Compensation” for 2021 includes (a) severance payments made pursuant to his employment agreement upon termination of his employment due to death, including (i) a lump sum payment equal to 200% of his then base salary ($1,000,000), plus (ii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan ($1,000,000), plus (iii) acceleration of vesting of his cash interests in certain long-term incentive plans ($3,670,389), plus (iv) group health and similar insurance premiums on behalf of him and his spouse and dependents for 18 months following the date of termination ($15,696); (b) a $1,500,000 bonus awarded to Mr. Faneuil by the Compensation Committee in recognition of his years of service to the Partnership; (c) a $1,500,000 bonus awarded to Mr. Faneuil by the Compensation Committee in lieu of long-term cash incentive awards under the LTCIP for calendar year 2020 and 2021; and (d) base salary for accrued but not taken days of paid time off in the amount of $75,099. |
(12) | With respect to Mr. Andrew Slifka, “All Other Compensation” for 2021 includes, among other things, (a) professional financial planning and tax advice fees, paid by us in the amount of $20,741and (b) base salary for accrued but not taken days of paid time off in the amount of $34,422. |
105
Pro-Forma Disclosure Table
The Pro-Forma Disclosure Table below reflects the value of compensation granted to Messrs. Eric Slifka, Romaine and Spencer as of the end of 2021 in respect of service during 2021, 2020 and 2019. While not required by the SEC’s executive compensation disclosure rules, we believe this optional disclosure is relevant and helpful for unitholders to understand our executive compensation structure in more detail.
| | | | | | | | | | | | | | | | | |
|
| |
| |
| |
| |
| |
| Change in |
| |
| | |
| | | | | | | | | | | | Pension Value | | | | | |
| | | | | | | | | | | | and Deferred | | | | | |
| | | | | | | | Short-Term | | Long-Term | | Nonqualified | | | | | |
| | | | | | | | Incentive | | Incentive | | Compensation | | All Other | | | |
| | | | Salary | | Bonus | | Cash Awards | | Cash Awards | | Earnings | | Compensation | | Total | |
Name | | Year | | ($) | | ($) (1) | | ($) (2) | | ($) (3) | | ($) | | ($) | | ($)(4) | |
Eric Slifka |
| 2021 |
| 1,000,000 |
| — |
| 2,000,000 |
| — |
| — |
| 92,919 |
| 3,092,919 | |
|
| 2020 |
| 1,000,000 |
| 986,000 |
| 2,000,000 |
| 3,500,000 |
| 123,562 |
| 109,241 |
| 7,718,803 | |
|
| 2019 |
| 1,000,000 |
| — |
| 599,150 |
| 3,300,000 |
| 164,449 |
| 100,008 |
| 5,163,607 | |
Mark A. Romaine |
| 2021 |
| 575,000 |
| — |
| 1,150,000 |
| — |
| 2,286 |
| 42,455 |
| 1,769,741 | |
|
| 2020 |
| 575,000 |
| 569,000 |
| 1,150,000 |
| 1,300,000 |
| 52,463 |
| 40,951 |
| 3,687,414 | |
| | 2019 |
| 575,000 |
| — |
| 344,511 |
| 1,200,000 |
| 68,892 |
| 39,409 |
| 2,227,812 | |
Matthew Spencer |
| 2021 |
| 300,000 |
| — |
| 600,000 |
| — |
| — |
| 48,655 |
| 948,655 | |
|
| 2020 |
| 275,000 |
| 200,000 |
| 400,000 |
| 600,000 |
| — |
| 48,573 |
| 1,523,573 | |
|
| 2019 |
| 275,000 |
| — |
| 119,830 |
| 400,000 |
| — |
| 50,321 |
| 845,151 | |
(1) | In 2021, Messrs. Eric Slifka, Romaine and Mr. Spencer were paid discretionary bonuses of $986,000, $569,000 and $200,000, respectively, for services performed during 2020. No discretionary bonuses were paid to our named executive officers for services performed during 2021 or 2019. |
(2) | Amounts reported in this column reflect the grant date fair value of the short-term cash incentive awards granted during the applicable year for service during the applicable year under our general partner’s Short-Term Incentive Plans, which are described above under “Elements of Compensation—Short-Term Incentive Plans.” |
(3) | Amounts reported in this column reflect the grant date fair value of the long-term cash incentive awards granted in respect of service during the applicable year under the LTCIP and, with respect to Mr. Eric Slifka, the 2018 Long-Term Performance-Based Cash Incentive Plan contained in Mr. Eric Slifka’s prior employment agreement with our general partner that was in effect during 2018 and January 2019. See the section above titled “Elements of Compensation—Long-Term Cash Incentive Awards” for more information. |
(4) | Amounts reported in this table do not include the value of any unit awards or long-term incentive cash awards granted in respect of service during 2021 as long-term incentive awards are not expected to be granted, if applicable, until after this Annual Report on Form 10-K for the year ended December 31, 2021 is filed. The value of such compensation will be disclosed in a Pro-Forma Disclosure Table contained in a future Annual Report on Form 10-K. |
106
All Other Compensation Table
The following table describes each component of the “All Other Compensation” column of the Summary Compensation Table for the fiscal year ended December31, 2018:2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Club Membership Dues, |
|
|
|
|
|
|
| Employer |
| Legal Fees and |
|
|
|
|
|
|
| Contributions to |
| Professional |
| Personal |
|
|
|
|
| Global 401(k) |
| Financial Planning and |
| Benefits |
| Total All Other |
|
Name |
| Plan ($) |
| Tax Advice Fees ($) |
| ($) (1) |
| Compensation ($) |
|
Eric Slifka |
| 10,800 |
| 51,528 |
| 28,592 |
| 90,920 |
|
Mark A. Romaine |
| 11,000 |
| — |
| 31,513 |
| 42,513 |
|
Edward J. Faneuil |
| 11,000 |
| 16,497 |
| 16,841 |
| 44,338 |
|
Daphne H. Foster |
| 11,000 |
| — |
| 13,905 |
| 24,905 |
|
Andrew Slifka |
| 12,250 |
| 18,600 |
| 25,060 |
| 55,910 |
|
Matthew Spencer |
| 14,200 |
| — |
| 33,350 |
| 47,550 |
|
|
|
Grants of Plan-Based Awards
The following table sets forth information concerning short-term cash incentive awards granted to our named executive officers under the STIP (including the minimum threshold, target and maximum possible payout amounts, depending upon our financial performance in 2018) during 2018, long-term cash incentive awards granted to our named executive officers under the LTCIP during 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated Possible Payouts Under |
| ||||
|
|
|
| Non-Equity Incentive Plan Awards (1)(2) |
| ||||
|
|
|
| Minimum |
|
|
|
|
|
Name |
| Award Type |
| Threshold ($) |
| Target ($) |
| Maxium ($) |
|
Eric Slifka |
| STIP |
| 96,000 |
| 800,000 |
| 1,600,000 |
|
|
| LTCIP |
| — |
| 2,700,000 |
| — |
|
|
| 2018 Long-Term Performance-Based Cash Incentive Plan (3) |
| 675,000 |
| — |
| 4,050,000 |
|
Mark A. Romaine |
| STIP |
| 60,000 |
| 500,000 |
| 1,000,000 |
|
|
| LTCIP |
| — |
| 900,000 |
| — |
|
Edward J. Faneuil |
| STIP |
| 54,500 |
| 450,000 |
| 900,000 |
|
|
| LTCIP |
| — |
| 750,000 |
| — |
|
Daphne H. Foster |
| STIP |
| 54,500 |
| 450,000 |
| 900,000 |
|
|
| LTCIP |
| — |
| 750,000 |
| — |
|
Andrew Slifka |
| STIP |
| 36,000 |
| 300,000 |
| 600,000 |
|
|
| LTCIP |
| — |
| 400,000 |
| — |
|
Matthew Spencer |
| STIP |
| 24,000 |
| 200,000 |
| 400,000 |
|
|
| LTCIP |
| — |
| 275,000 |
| — |
|
|
|
|
|
103
|
|
|
Outstanding Equity Awards at Fiscal Year End
The following table presents the full amount of the equity awards held by our named executive officers as of December 31, 2018, which consist solely of phantom units granted under the LTIP. The awards shown on the table below were the only equity awards held by the named executive officers at the end of the last fiscal year:
|
|
|
|
|
|
|
|
|
|
|
| Unit Awards |
| ||
|
|
|
| Number of |
| Market Value of |
|
|
|
|
| Units That Have |
| Units That Have |
|
Name |
| Grant Date |
| Not Vested (#) |
| Not Vested ($) (5) |
|
Eric Slifka |
| June 27, 2013 (1) |
| 42,419 |
| 691,430 |
|
|
| August 16, 2017 (2) |
| 163,780 |
| 2,669,614 |
|
Mark A. Romaine |
| June 27, 2013 (1) |
| 19,004 |
| 309,765 |
|
|
| August 16, 2017 (2) |
| 63,415 |
| 1,033,665 |
|
Edward J. Faneuil |
| June 27, 2013 (1) |
| 25,452 |
| 414,868 |
|
|
| August 16, 2017 (2) |
| 50,747 |
| 827,176 |
|
Daphne H. Foster |
| June 27, 2013 (1) |
| 7,295 |
| 118,909 |
|
|
| August 16, 2017 (2) |
| 53,855 |
| 877,837 |
|
Andrew Slifka |
| June 27, 2013 (1) |
| 9,845 |
| 160,474 |
|
|
| August 16, 2017 (2) |
| 34,329 |
| 559,563 |
|
Matthew Spencer |
| September 23, 2013 (3) |
| 848 |
| 13,822 |
|
|
| August 11, 2014 (4) |
| 3,502 |
| 57,083 |
|
|
| August 16, 2017 (2) |
| 11,941 |
| 194,638 |
|
|
|
|
|
|
|
|
|
|
|
Units Vested in the 2018 Fiscal Year
The following table presents phantom units awarded to the named executive officers that vested during the year
104
ended December 31, 2018.
|
|
|
|
|
|
|
| Unit Awards |
| ||
|
| Number of |
|
|
|
|
| Vested |
| Market Value of Vested |
|
Name |
| Phantom Units (#) |
| Phantom Units ($) |
|
Eric Slifka (1) |
| 42,420 |
| 723,261 |
|
Mark A. Romaine (1) |
| 19,004 |
| 324,018 |
|
Edward J. Faneuil (1) |
| 25,452 |
| 433,957 |
|
Daphne H. Foster (1) |
| 7,297 |
| 124,414 |
|
Andrew Slifka (1) |
| 9,846 |
| 167,874 |
|
Matthew Spencer (2) |
| 2,600 |
| 48,270 |
|
|
|
|
|
Nonqualified Deferred Compensation
On December 31, 2008, our general partner and Edward J. Faneuil entered into a deferred compensation agreement pursuant to which Mr. Faneuil will be subject to terms and conditions relating to confidential information, non-solicitation and non-competition, as provided therein (the “Global Deferred Compensation Agreement”). Please read “Potential Payments upon Termination or Change of Control” for a discussion of the provisions in Mr. Faneuil's deferred compensation agreement relating to termination, change of control and related payment obligations.
On September 23, 2009, Alliance and Mr. Faneuil entered into a deferred compensation agreement pursuant to which Mr. Faneuil will be subject to terms and conditions relating to confidential information, non-solicitation and non-competition, as provided therein (the “Alliance Deferred Compensation Agreement”). Please read “Potential Payments upon Termination or Change of Control” for a discussion of the provisions in Mr. Faneuil’s deferred compensation agreement relating to termination, change of control and related payment obligations.
Potential Payments upon a Change of Control or Termination
The following tables show potential payments to each of our named executive officers under contracts, agreements, plans or arrangements, whether written or unwritten (including the employment agreements with Messrs. Eric Slifka, Andrew Slifka, Faneuil and Romaine and Ms. Foster that were in effect during 2018), for various scenarios involving a change of control or termination of employment of each such named executive officer assuming a December 31, 2018 termination date. The amounts shown do not contemplate any changes to such contracts, agreements, plans or arrangements that were implemented after December 31, 2018, including the new employment agreements entered into with each of Messrs. Eric Slifka, Andrew Slifka, Faneuil, Romaine and Spencer and Ms. Foster on February 4, 2019. However, in order to provide our unitholders with the most relevant and up-to-date disclosures regarding our currently existing arrangements, we have described the payments and benefits that Messrs. Eric Slifka, Andrew Slifka, Faneuil, Romaine and Spencer and Ms. Foster would be entitled to receive under such new employment agreements below. In addition, amounts reflected in the tables below with respect to LTIP awards were calculated based on the closing price of our common units of $16.30 per unit as of December 31, 2018.
LTIP Awards. Each of our named executive officers holds outstanding unvested phantom units that were granted under the LTIP. Upon a change of control event, all outstanding phantom units held by our named executive officers that have not otherwise vested automatically will become fully vested, which is reflected appropriately in the
105
tables below.
LTCIP Awards. Each of our named executive officers was granted a 2018 LTCIP Award under the LTCIP. Upon a change of control event, the unvested portion of the 2018 LTCIP Awards held by our named executive officers will become fully vested, which is reflected in the tables below.
2018 Long-Term Performance-Based Cash Incentive Plan. Mr. Eric Slifka’s prior employment agreement with our general partner included a provision for the 2018 Long-Term Performance-Based Cash Incentive Plan covering the period from March 29, 2018 through March 29. 2019. Upon Mr. Eric Slifka’s termination of employment due to death, Disability, by our general partner without Cause or by Mr. Eric Slifka for reasons constituting Constructive Termination, Mr. Eric Slifka is entitled to receive the pro-rated cash incentive amount, if any, earned under the 2018 Long-Term Performance-Based Cash Incentive Plan, as determined by the Compensation Committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Termination by general |
|
|
| ||
|
|
|
|
|
|
|
| partner without Cause / |
|
|
| ||
|
|
|
|
|
|
|
| Constructive Termination / |
|
|
| ||
|
|
|
|
|
|
|
| Breach by general partner |
|
|
| ||
|
| Change in |
|
|
|
|
| No Change |
| With a Change |
|
|
|
|
| Control |
| Death |
| Disability |
| in Control |
| in Control |
| Nonrenewal |
|
Name |
| ($) |
| ($)(2) |
| ($)(2) |
| ($)(3) |
| ($)(4) |
| ($)(5) |
|
Eric Slifka |
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Amount |
| — |
| 3,200,000 |
| 3,200,000 |
| 3,200,000 |
| 4,800,000 |
| 1,600,000 |
|
2018 Long-Term Performance-Based Cash Incentive Plan (1) |
| — |
| — |
| — |
| — |
| — |
| — |
|
LTIP awards |
| 3,361,044 |
| 3,361,044 |
| 3,361,044 |
| 3,361,044 |
| 3,361,044 |
| — |
|
LTCIP award |
| 2,700,000 |
| 2,700,000 |
| 2,700,000 |
| 2,700,000 |
| 2,700,000 |
| — |
|
Fringe benefits |
| — |
| 43,219 |
| 43,219 |
| 43,219 |
| 43,219 |
| — |
|
Life insurance benefits |
| — |
| 500,000 |
| — |
| — |
| — |
| — |
|
Total |
| 6,061,044 |
| 9,804,263 |
| 9,304,263 |
| 9,304,263 |
| 10,904,263 |
| 1,600,000 |
|
(1) This table does not include potential cash incentive payments that Mr. Slifka is eligible to receive under the 2018 Long-Term Performance-Based Cash Incentive Plan, as the amount of such payments, if any, would be determined by the Compensation Committee.
(2)Mr. Slifka’s new employment agreement provides for a base salary of $1,000,000 and a 2019 STIP target amount of $1,000,000. Under the new agreement, if Mr. Slifka’s employment is terminated by death or Disability, Mr. Slifka (or his estate, as applicable) would be paid a severance amount of $4,000,000, such amount representing (a) a lump sum payment equal to his then base salary multiplied by 200%, plus (b) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%.
(3)Mr. Slifka’s new employment agreement provides for a base salary of $1,000,000 and a 2019 STIP target amount of $1,000,000. Under the new agreement, if Mr. Slifka’s employment is terminated by our general partner without Cause or by Mr. Slifka for reasons constituting Constructive Termination without a Change in Control, Mr. Slifka (or his estate) would be paid a severance amount of $4,000,000, such amount representing (a) a lump sum payment equal to his then base salary multiplied by 200%, plus (b) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%.
(4)Mr. Slifka’s new employment agreement provides for a base salary of $1,000,000 and a 2019 STIP target amount of $1,000,000. Under the new agreement, if Mr. Slifka’s employment is terminated by our general partner without Cause or by Mr. Slifka for reasons constituting Constructive Termination and such termination occurs within 12 months following a Change in Control, Mr. Slifka (or his estate) would be paid a severance amount of $6,000,000, such amount representing (i) a lump sum payment equal to his then base salary multiplied by 300%, plus (ii) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 300%.
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(5)Mr. Slifka’s new employment agreement provides for a base salary of $1,000,000 and a 2019 STIP target amount of $1,000,000. Under the new agreement, in the event of non-renewal, in addition to a lump sum payment equal to 200% of his then base salary ($2,000,000), Mr. Slifka would also receive payment of the performance-based and discretionary components, if any, of his STIP award for such year. For purposes of this calculation, we have assumed that Mr. Slifka would receive payment of (a) 100% of the performance-based component ($500,000), and (b) 0% of the discretionary component associated with his 2019 STIP target amount.
2018 Employment Agreement
If Mr. Slifka’s employment is terminated for any reason, he shall be paid (i) all amounts of his base salary due and owing up through the date of termination, (ii) any earned but unpaid bonus, (iii) all reimbursements of expenses appropriately and timely submitted, and (iv) any and all other amounts, including vacation pay, that may be due to him as of the date of termination (the “Eric Slifka Accrued Obligations”).
If Mr. Slifka’s employment is terminated by death or “Disability” (as defined in the employment agreement), he (or his estate) will be paid (i) the Eric Slifka Accrued Obligations, plus (ii) a lump sum payment equal to his then base salary multiplied by 200%, plus (iii) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%, plus (iv) his interests in the long-term incentive plans, including (a) the pro-rated cash incentive amount, if any, earned under the Long-Term Performance-Based Cash Incentive Plan and (b) the amounts of cash and/or securities due as a result of the automatic vesting of Mr. Slifka’s interests in certain long-term incentive plans, plus (v) group health and similar insurance premiums on behalf of his spouse and dependents for 24 months following the date of termination.
If Mr. Slifka’s employment is terminated by our general partner without “Cause” or by Mr. Slifka for reasons constituting “Constructive Termination,” each as defined in the employment agreement, he shall be paid (i) the Eric Slifka Accrued Obligations, plus (ii) a lump sum payment equal to his then base salary multiplied by 200% (provided, however, that this multiplier shall be 300% if Mr. Slifka terminates his employment for reasons constituting Constructive Termination and such termination occurs within 12 months following a “Change in Control” (as defined in the employment agreement)), plus (iii) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200% (provided, however, that this multiplier shall be 300% if Mr. Slifka terminates his employment for reasons constituting Constructive Termination and such termination occurs within 12 months following a Change in Control), plus (iv) his interests in the long-term incentive plans, including (a) the pro-rated cash incentive amount, if any, earned under the Long-Term Performance-Based Cash Incentive Plan and (b) the amounts of cash and/or securities due as a result of the automatic vesting of Mr. Slifka’s interests in certain long-term incentive plans, plus (v) group health and similar insurance premiums on behalf of his spouse and dependents for 24 months following the date of termination. If Mr. Slifka terminates his employment for reasons of Constructive Termination but such termination does not occur within 12 months following a Change in Control and Mr. Slifka secures employment within 12 months of the date of termination, he shall repay to our general partner one-half of the cash received from our general partner pursuant to (ii) and (iii) above.
If Mr. Slifka’s employment is terminated by our general partner for Cause, Mr. Slifka will be paid the Eric Slifka Accrued Obligations. If Mr. Slifka’s employment agreement is not renewed by our general partner and he does not continue to serve as our general partner’s President and Chief Executive Officer following the expiration of his employment agreement (a “Non-Renewal”), he shall be paid the Eric Slifka Accrued Obligations plus a lump sum payment equal to 200% of his then base salary.
New Employment Agreement
Mr. Slifka and our general partner entered into a new employment agreement, effective February 1, 2019, that provides that, in the event of a Non-Renewal, in addition to the benefits described above for Non-Renewal under the section titled “2018 Employment Agreement,” Mr. Slifka shall also receive payment of the performance-based and discretionary components, if any, of his STIP award for such year.
Upon a Change of Control, the unvested portions of any outstanding LTCIP Awards and outstanding phantom
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units held by Mr. Slifka automatically shall become fully vested.
Mark A. Romaine
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| Termination by general |
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| partner without Cause / |
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| Constructive Termination / |
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| Breach by general partner |
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| Change in |
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| No Change |
| With a Change |
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| Control |
| Death |
| Disability |
| in Control |
| in Control |
| Nonrenewal |
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Name |
| ($) |
| ($)(1) |
| ($)(1) |
| ($)(2) |
| ($)(2) |
| ($)(3) |
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Mark A. Romaine |
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Severance Amount |
| — |
| 2,000,000 |
| 2,000,000 |
| 2,000,000 |
| 2,000,000 |
| — |
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LTIP awards |
| 1,343,430 |
| 1,343,430 |
| 1,343,430 |
| 1,343,430 |
| 1,343,430 |
| — |
|
LTCIP award |
| 900,000 |
| 900,000 |
| 900,000 |
| 900,000 |
| 900,000 |
| — |
|
Fringe benefits |
| — |
| 32,868 |
| 32,868 |
| 32,868 |
| 32,868 |
| — |
|
Life insurance benefits |
| — |
| 500,000 |
| — |
| — |
| — |
| — |
|
Total |
| 2,243,430 |
| 4,776,298 |
| 4,276,298 |
| 4,276,298 |
| 4,276,298 |
| — |
|
(1)Mr. Romaine’s new employment agreement provides for a base salary of $575,000 and a 2019 STIP target amount of $575,000. Under the new agreement, if Mr. Romaine’s employment is terminated by death or Disability, Mr. Romaine (or his estate, as applicable) would be paid a severance amount of $2,300,000, such amount representing (a) a lump sum payment equal to his then base salary multiplied by 200%, plus (b) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%.
(2)Mr. Romaine’s new employment agreement provides for a base salary of $575,000 and a 2019 STIP target amount of $575,000. Under the new agreement, if Mr. Romaine’s employment is terminated by our general partner without Cause or by Mr. Romaine for reasons constituting Constructive Termination with or without a Change in Control Mr. Romaine (or his estate) would be paid a severance amount of $2,300,000, such amount representing (a) a lump sum payment equal to his then base salary multiplied by 200%, plus (b) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%.
(3)Mr. Romaine’s new employment agreement provides for a base salary of $575,000 and a 2019 STIP target amount of $575,000. Under the new agreement, in the event of non-renewal, in addition to a lump sum payment equal to 200% of his then base salary ($1,150,000), Mr. Romaine would also receive payment of the performance-based and discretionary components, if any, of his STIP award for such year. For purposes of this calculation, we have assumed that Mr. Romaine would receive payment of (a) 100% of the performance-based component ($287,500), and (b) 0% of the discretionary component associated with his 2019 STIP target amount.
2018 Employment Agreement
The employment agreement with Mr. Romaine may be terminated at any time by either party with proper notice. If Mr. Romaine’s employment is terminated for any reason, Mr. Romaine shall be paid (i) all amounts of his base salary due and owing up through the date of termination, (ii) all earned, but unpaid, bonuses, (iii) all reimbursements of expenses appropriately and timely submitted, and (iv) any and all other amounts, including vacation pay, that may be due to him as of the date of termination (the “Romaine Accrued Obligations”).
If Mr. Romaine’s employment is terminated by death or “Disability” (as defined in the employment agreement), he (or his estate) will be paid (i) the Romaine Accrued Obligations, (ii) a lump sum payment equal to 200% of his then base salary, (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, (iv) acceleration of vesting of his cash or equity interests in certain long-term incentive plans, and (v) group health and similar insurance premiums on behalf of him and his spouse and dependents for 18 months following the date of termination.
If Mr. Romaine’s employment is terminated by our general partner without “Cause” or by Mr. Romaine for reasons constituting “Constructive Termination” (each quoted term as defined in the employment agreement), Mr.
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Romaine shall be paid (i) the Romaine Accrued Obligations, (ii) a lump sum payment equal to 200% of his then base salary, (iii) an amount equal to 200% of target incentive amount under the then applicable short-term incentive plan, (iv) acceleration of vesting of his cash and equity interests in long-term incentive plans, (v) group health and similar insurance premiums on behalf of his spouse and dependents for 18 months following the date of termination, and (vi) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Mr. Romaine pursuant to Section 4999 of the Code.
Further, if Mr. Romaine’s employment is terminated by our general partner without Cause or Mr. Romaine terminates his employment for Constructive Termination, at any time within three (3) months before a Change in Control and twelve (12) months following a Change of Control (as defined in the employment agreement), then, in addition to the foregoing severance compensation and benefits, Mr. Romaine shall receive 100% accelerated vesting on any and all outstanding Partnership options, restricted units, phantom units, unit appreciation rights and other similar rights (under the LTIP or otherwise) held by Mr. Romaine as in effect on the date of termination, such accelerated vesting to occur on the later of (i) the date of termination, or (ii) the date of the Change of Control.
New Employment Agreement
Mr. Romaine and our general partner entered into a new employment agreement, effective as of January 1, 2019 (the “Romaine 2019-2021 Agreement”), that provides that if Mr. Romaine’s employment is terminated for any reason, he (or his estate, as applicable) shall be paid the Romaine Accrued Obligations.
If Mr. Romaine’s employment is terminated due to his death or Disability, the Romaine 2019-2021 Agreement provides that he (or his estate, as applicable) will be paid (i) the Romaine Accrued Obligations, plus (ii) a lump sum payment equal to 200% of his base salary, plus (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of his cash and equity interests in certain long-term incentive plans, plus (v) payment of group health and similar insurance premiums on behalf of him and his spouse and dependents, if any, for 18 months following the date of termination.
If Mr. Romaine’s employment is terminated by our general partner without Cause or by Mr. Romaine for reasons constituting Constructive Termination, the Romaine 2019-2021 Agreement provides that he shall be paid (i) the Romaine Accrued Obligations, plus (ii) a lump sum payment equal to 200% of his base salary, plus (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of his cash and equity interests in certain long-term incentive plans, plus (v) payment of group health and similar insurance premiums on behalf of him and his spouse and dependents, if any, for 18 months following the date of termination, plus (vi) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Mr. Romaine pursuant to Section 4999 of the Code.
If Mr. Romaine’s employment agreement is not renewed by our general partner and he does not continue to serve as our general partner’s Chief Operating Officer following the expiration of his employment agreement pursuant to a different employment agreement with our general partner, the Romaine 2019-2021 Agreement provides that he shall be paid (i) the Romaine Accrued Obligations, (ii) a lump sum payment equal to 200% of his then base salary, and (iii) the performance-based and discretionary components, if any, of his STIP award for such year.
Upon a Change of Control, the unvested portions of any outstanding LTCIP Awards and outstanding phantom units held by Mr. Romaine automatically shall become fully vested.
109
Edward J. Faneuil
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| partner without Cause / |
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| Breach by general partner |
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| Change in |
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| No Change |
| With a Change |
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| Control |
| Death |
| Disability |
| in Control |
| in Control |
| Nonrenewal |
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Name |
| ($) |
| ($)(1) |
| ($)(1) |
| ($)(2) |
| ($)(2) |
| ($)(3) |
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Edward J. Faneuil |
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Severance Amount |
| — |
| 1,800,000 |
| 1,800,000 |
| 1,800,000 |
| 1,800,000 |
| — |
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Deferred Compensation |
| 1,291,473 |
| 1,291,473 |
| 1,291,473 |
| 1,291,473 |
| 1,291,473 |
| — |
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LTIP awards |
| 1,242,044 |
| 1,242,044 |
| 1,242,044 |
| 1,242,044 |
| 1,242,044 |
| — |
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LTCIP award |
| 750,000 |
| 750,000 |
| 750,000 |
| 750,000 |
| 750,000 |
| — |
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Fringe benefits |
| — |
| 21,293 |
| 21,293 |
| 21,293 |
| 21,293 |
| — |
|
Life insurance benefits |
| — |
| 335,000 |
| — |
| — |
| — |
| — |
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Total |
| 3,283,517 |
| 5,439,810 |
| 5,104,810 |
| 5,104,810 |
| 5,104,810 |
| — |
|
(1)Mr. Faneuil’s new employment agreement provides for a base salary of $500,000 and a 2019 STIP target amount of $500,000. Under the new agreement, if Mr. Faneuil’s employment is terminated by death or Disability, Mr. Faneuil (or his estate, as applicable) would be paid a severance amount of $2,000,000, such amount representing (a) a lump sum payment equal to his then base salary multiplied by 200%, plus (b) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%.
(2)Mr. Faneuil’s new employment agreement provides for a base salary of $500,000 and a 2019 STIP target amount of $500,000. Under the new agreement, if Mr. Faneuil’s employment is terminated by our general partner without Cause or by Mr. Faneuil for reasons constituting Constructive Termination with or without a Change in Control, Mr. Faneuil (or his estate) would be paid a severance amount of $2,000,000, such amount representing (a) a lump sum payment equal to his then base salary multiplied by 200%, plus (b) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%.
(3)Mr. Faneuil’s new employment agreement provides for a base salary of $500,000 and a 2019 STIP target amount of $500,000. Under the new agreement, in the event of non-renewal, in addition to receiving a lump sum payment equal to 200% of his then base salary ($1,000,000) Mr. Faneuil would also receive payment of the performance-based and discretionary components, if any, of his STIP award for such year; for purposes of this calculation, we have assumed that Mr. Faneuil would receive payment of (a) 100% of the performance-based component ($250,000), and (b) 0% of the discretionary component, associated with his 2019 STIP target amount.
2018 Employment Agreement
The employment agreement with Mr. Faneuil may be terminated at any time by either party with proper notice.If Mr. Faneuil’s employment is terminated for any reason, Mr. Faneuil shall be paid (i) all amounts of his base salary due and owing up through the date of termination, (ii) all earned, but unpaid, bonuses, (iii) all reimbursements of expenses appropriately and timely submitted, and (iv) any and all other amounts, including vacation pay, that may be due to him as of the date of termination (the “Faneuil Accrued Obligations”).
If Mr. Faneuil’s employment is terminated by death or “Disability” (as defined in the employment agreement), he (or his estate) will be paid or receive (i) the Faneuil Accrued Obligations, (ii) a lump sum payment equal to 200% of his then base salary, (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, (iv) acceleration of vesting of his cash or equity interests in certain long-term incentive plans, and (v) group health and similar insurance premiums on behalf of him and his spouse and dependents for 18 months following the date of termination.
If Mr. Faneuil’s employment is terminated by our general partner without “Cause” or by Mr. Faneuil for reasons constituting “Constructive Termination,” each as defined in the employment agreement, he shall be paid (i) the Faneuil Accrued Obligations,(ii) a lump sum payment equal to 200% of his then base salary, (iii) an amount equal to
110
200% of target incentive amount under the then applicable short-term incentive plan, (iv) acceleration of vesting of his cash and equity interests in long-term incentive plans, (v) group health and similar insurance premiums on behalf of his spouse and dependents for 18 months following the date of termination, and (vi) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Mr. Faneuil pursuant to Section 4999 of the Code.
If Mr. Faneuil’s employment is terminated by our general partner without Cause or Mr. Faneuil terminates his employment for Constructive Termination, at any time within three (3) months before a Change in Control and twelve (12) months following a Change of Control, then, in addition to the foregoing severance compensation and benefits, Mr. Faneuil shall receive 100% accelerated vesting on any and all outstanding Partnership options, restricted units, phantom units, unit appreciation rights and other similar rights (under the LTIP or otherwise) held by Mr. Faneuil as in effect on the date of termination, such accelerated vesting to occur on the later of (i) the date of termination, or (ii) the date of the Change of Control.
New Employment Agreement
Mr. Faneuil and our general partner entered into a new employment agreement, effective as of January 1, 2019 (the “Faneuil 2019-2021 Agreement”), that provides that if Mr. Faneuil’s employment is terminated for any reason, he (or his estate, as applicable) shall be paid the Faneuil Accrued Obligations. If Mr. Faneuil’s employment is terminated due to his death or Disability, the Faneuil 2019-2021 Agreement provides that he (or his estate, as applicable) will be paid (i) the Faneuil Accrued Obligations, plus (ii) a lump sum payment equal to 200% of his base salary, plus (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of his cash and equity interests in certain long-term incentive plans, plus (v) payment of group health and similar insurance premiums on behalf of him and his spouse and dependents, if any, for 18 months following the date of termination.
If Mr. Faneuil’s employment is terminated by our general partner without Cause or by Mr. Faneuil for reasons constituting Constructive Termination, the Faneuil 2019-2021 Agreement provides that he shall be paid (i) the Faneuil AccruedObligations, plus (ii) a lump sum payment equal to 200% of his base salary, plus (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of his cash and equity interests in certain long-term incentive plans, plus (v) payment of group health and similar insurance premiums on behalf of him and his spouse and dependents, if any, for 18 months following the date of termination, plus (vi) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Mr. Faneuil pursuant to Section 4999 of the Code.
If Mr. Faneuil’s employment agreement is not renewed by our general partner and he does not continue to serve as our general partner’s Executive Vice President and General Counsel following the expiration of his employment agreement pursuant to a different employment agreement with our general partner, the Faneuil 2019-2021 Agreement provides that he shall be paid (i) the Faneuil Accrued Obligations, (ii) a lump sum payment equal to 200% of his then base salary, and (iii) the performance-based and discretionary components, if any, of his STIP award for such year.
Upon a Change of Control, the unvested portions of any outstanding LTCIP Awards and outstanding phantom units held by Mr. Faneuil automatically shall become fully vested.
Our general partner and Mr. Faneuil also entered into the Global Deferred Compensation Plan, pursuant to which Mr. Faneuil is currently being paid the sum of $70,000 per year (the “Global Deferred Compensation”) in equal monthly installments of $5,833.33 on the first business day of each month for 15 years (180 months). In the event of an unforeseeable emergency as referenced in the deferred compensation agreement, our general partner will pay Mr. Faneuil within 15 days of the occurrence of the unforeseeable emergency the maximum amount allowable in a lump sum promptly following the occurrence of such unforeseeable emergency. The Global Deferred Compensation will be forfeited in its entirety in the event that Mr. Faneuil terminates his employment for any reason other than death, disability or a Change in Control (as defined below). On and after the date on which Global Deferred Compensation payments commence, our general partner may terminate its obligations under the deferred compensation agreement for Cause or if
111
our general partner subsequently determines within 18 months of Mr. Faneuil’s termination that circumstances which would give rise to a for Cause termination of Mr. Faneuil otherwise existed at the time of his earlier termination. In the event of Mr. Faneuil’s death prior to his receiving any or all of the aggregate amount of the Global Deferred Compensation, our general partner will pay Mr. Faneuil’s beneficiary within 60 days of the date of his death a single lump sum payment in an amount equal to the present value of the remaining payments that would have been paid to Mr. Faneuil. If there is a Change in Control or Mr. Faneuil is determined to have become disabled prior to his receiving any or all of the aggregate amount of the Global Deferred Compensation, our general partner will pay to Mr. Faneuil within 60 days of the effective date of the Change in Control or the determination that Mr. Faneuil became disabled a single lump sum payment in an amount equal to the present value of the remaining payments that would have been paid to him had the Change in Control not occurred or had Mr. Faneuil not become disabled. For purposes of the Global Deferred Compensation Agreement, “Cause”, as defined in the deferred compensation agreement, means (a) any uncured material breach by Mr. Faneuil of his obligations under the Global Deferred Compensation Agreement, (b) any breach by Mr. Faneuil of his confidentiality, non-competition and non-solicitation obligations set forth on Exhibit “A” to the Global Deferred Compensation Agreement or included in his employment agreement with our general partner, (c) engagement in gross negligence or willful misconduct in the performance of his duties, (d) a conviction or plea of no contest to a crime involving fraud, dishonesty or moral turpitude or any felony, or (e) the commission of an act of embezzlement or willful breach of a fiduciary duty to our general partner, the Partnership or any of its Affiliates.
Alliance and Mr. Faneuil also entered into the Alliance Deferred Compensation Agreement, the terms of which, including, without limitation, the payment terms thereunder, are on the same terms as those of the Global Deferred Compensation Agreement. Accordingly, the various scenarios involving a change of control or termination of employment under the Alliance Deferred Compensation Agreement are identical to those described above with respect to the Global Deferred Compensation Agreement.
Our general partner is obligated to reimburse Mr. Faneuil for any and all federal excise taxes and penalties (other than penalties imposed as a result of Mr. Faneuil’s actions), and any taxes imposed upon such reimbursement amounts, including, but not limited to, any federal, state and local income taxes, employment taxes, and other taxes, if any, which may become due pursuant to the application of Sections 4999 and/or 409A of the Code on any payments to Mr. Faneuil in connection the employment agreement. Mr. Faneuil and our general partner have agreed to reform any provision of the deferred compensation agreement, as amended, between them in a manner mutually agreeable to avoid imposition of any additional tax under the provisions of Section 409A of the Code and related regulations and Treasury pronouncements.
Daphne H. Foster
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| Termination by general |
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| partner without Cause / |
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| Constructive Termination / |
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| Breach by general partner |
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| Change in |
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| No Change |
| With a Change |
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| Control |
| Death |
| Disability |
| in Control |
| in Control |
| Nonrenewal |
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Name |
| ($) |
| ($)(1) |
| ($)(1) |
| ($)(2) |
| ($)(2) |
| ($)(3) |
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Daphne H. Foster |
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Severance Amount |
| — |
| 1,800,000 |
| 1,800,000 |
| 1,800,000 |
| 1,800,000 |
| — |
|
LTIP awards |
| 996,745 |
| 996,745 |
| 996,745 |
| 996,745 |
| 996,745 |
| — |
|
LTCIP award |
| 750,000 |
| 750,000 |
| 750,000 |
| 750,000 |
| 750,000 |
| — |
|
Fringe benefits |
| — |
| 2,296 |
| 2,296 |
| 2,296 |
| 2,296 |
| — |
|
Life insurance benefits |
| — |
| 500,000 |
| — |
| — |
| — |
| — |
|
Total |
| 1,746,745 |
| 4,049,041 |
| 3,549,041 |
| 3,549,041 |
| 3,549,041 |
| — |
|
(1)Ms. Foster’s new employment agreement provides for a base salary of $500,000 and a 2019 STIP target amount of $500,000. Under the new agreement, if Ms. Foster’s employment is terminated by death or Disability, Ms. Foster (or her estate, as applicable) would be paid a severance amount of $2,000,000, such amount representing (a) a lump sum payment equal to her then base salary multiplied by 200%, plus (b) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%.
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(2)Ms. Foster’s new employment agreement provides for a base salary of $500,000 and a 2019 STIP target amount of $500,000. Under the new agreement, if Ms. Foster’s employment is terminated by our general partner without Cause or by Ms. Foster for reasons constituting Constructive Termination with or without a Change in Control, Ms. Foster (or her estate) would be paid a severance amount of $2,000,000, such amount representing (a) a lump sum payment equal to her then base salary multiplied by 200%, plus (b) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%.
(3)Ms. Foster’s new employment agreement provides for a base salary of $500,000 and a 2019 STIP target amount of $500,000. Under the new agreement, in the event of non-renewal, in addition to receiving a lump sum payment equal to 200% of her then base salary ($1,000,000), Ms. Foster would also receive payment of the performance-based and discretionary components, if any, of her STIP award for such year; for purposes of this calculation, we have assumed that Ms. Foster would receive payment of (a) 100% of the performance-based component ($250,000), and (b) 0% of the discretionary component associated with her 2019 STIP target amount.
2018 Employment Agreement
The employment agreement with Ms. Foster may be terminated at any time by either party with proper notice. If Ms. Foster’s employment is terminated for any reason, Ms. Foster shall be paid (i) all amounts of her base salary due and owing up through the date of termination, (ii) all earned, but unpaid, bonuses, (iii) all reimbursements of expenses appropriately and timely submitted, and (iv) any and all other amounts, including vacation pay, that may be due to her as of the date of termination (the “Foster Accrued Obligations”).
If Ms. Foster’s employment is terminated by death or “Disability” (as defined in the employment agreement), she (or her estate) will be paid or receive (i) the Foster Accrued Obligations, (ii) a lump sum payment equal to 200% of her then base salary, (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, (iv) acceleration of vesting of her cash or equity interests in long-term incentive plans, and (v) group health and similar insurance premiums on behalf of her and her spouse and dependents for 18 months following the date of termination.
If Ms. Foster’s employment is terminated by our general partner without “Cause” or by Ms. Foster for reasons constituting “Constructive Termination” (each quoted term as defined in the employment agreement), Ms. Foster shall be paid (i) the Foster Accrued Obligations, (ii) a lump sum payment equal to 200% of her then base salary, (iii) an amount equal to 200% of target incentive amount under the then applicable short-term incentive plan, (iv) acceleration of vesting of her cash and equity interests in long-term incentive plans, (v) group health and similar insurance premiums on behalf of her spouse and dependents for 18 months following the date of termination, and (vi) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Ms. Foster pursuant to Section 4999 of the Code.
Further, if Ms. Foster’s employment is terminated by our general partner without Cause or Ms. Foster terminates her employment for Constructive Termination, at any time within three (3) months before a Change in Control and twelve (12) months following a Change of Control, then, in addition to the foregoing severance compensation and benefits, Ms. Foster shall receive 100% accelerated vesting on any and all outstanding Partnership options, restricted units, phantom units, unit appreciation rights and other similar rights (under the LTIP or otherwise) held by Ms. Foster as in effect on the date of termination, such accelerated vesting to occur on the later of (i) the date of termination, or (ii) the date of the Change of Control.
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New Employment Agreement
Ms. Foster and our general partner entered into a new employment agreement, effective as of January 1, 2019 (the “Foster 2019-2021 Agreement”), that provides that if Ms. Foster’s employment is terminated for any reason, she (or her estate, as applicable) shall be paid (i) all amounts of base salary due and owing up through the date of termination, (ii) any earned but unpaid bonus, (iii) all reimbursements of eligible business expenses, and (iv) the Foster Accrued Obligations.
If Ms. Foster’s employment is terminated due to her death or disability, the Foster 2019-2021 Agreement provides that she (or her estate, as applicable) will be paid (i) the Foster Accrued Obligations, plus (ii) a lump sum payment equal to 200% of her base salary, plus (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of her cash and equity interests in certain long-term incentive plans, plus (v) payment of group health and similar insurance premiums on behalf of her and her spouse and dependents, if any, for 18 months following the date of termination.
If Ms. Foster’s employment is terminated by our general partner without Cause or by Mr. Foster for reasons constituting Constructive Termination, the Foster 2019-2021 Agreement provides that she shall be paid (i) the Foster Accrued Obligations, plus (ii) a lump sum payment equal to 200% of her base salary, plus (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of her cash and equity interests in certain long-term incentive plans, plus (v) payment of group health and similar insurance premiums on behalf of her and her spouse and dependents, if any, for 18 months following the date of termination, plus (vi) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Mr. Foster pursuant to Section 4999 of the Code.
If Ms. Foster’s employment agreement is not renewed by our general partner and she does not continue to serve as our general partner’s Chief Financial Officer following the expiration of her employment agreement pursuant to a different employment agreement with our general partner, the Foster 2019-2021 Agreement provides that she shall be paid (i) the Foster Accrued Obligations, (ii) a lump sum payment equal to 200% of her then base salary, and (iii) the performance-based and discretionary components, if any, of her STIP award for such year.
Upon a Change of Control, the unvested portions of any outstanding LTCIP Awards and outstanding phantom units held by Ms. Foster automatically shall become fully vested.
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| | Global 401(k) | | Financial Planning and | | Benefits | | Total All Other |
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Name | | Plan ($) | | Tax Advice Fees ($) | | ($) (1)(2)(3)(4)(5) | | Compensation ($) |
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Eric Slifka | | 3,333 | | 53,061 | | 36,525 | | 92,919 | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gregory B. Hanson | | 11,400 | | — | | 31,234 | | 42,634 | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mark A. Romaine | | 11,400 | | — | | 31,055 | | 42,455 | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Matthew Spencer | | 15,700 | | — | | 32,955 | | 48,655 | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jez Langhorn | | 3,166 | | — | | 240,061 | | 243,227 | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Daphne H. Foster | | 11,400 | | — | | 4,700,573 | | 4,711,973 | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Edward J. Faneuil | | 11,400 | | 8,923 | | 7,749,334 | | 7,769,657 | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Andrew Slifka
| | 11,400 | | 24,150 | | 58,913 | | 94,463 | |
(1) The amounts in this column include the estimated incremental cost of an automobile provided by us for the named executive officer’s use; medical and dental premiums (or opt-out payments for declining coverage under our group healthcare policies) paid by us; and life insurance and long-term disability premiums paid by us. (2) With respect to Mr. Slifka’s newLanghorn, “Personal Benefits” for 2021 includes payment of $219,612 for relocation expenses, as described in footnote 9 to the table titled “Compensation of Named Executive Officers.”(3) With respect to Ms. Foster, “Personal Benefits” includes the amounts described in footnote 10 to the table titled “Compensation of Named Executive Officers.” (4) With respect to Mr. Faneuil, “Personal Benefits” includes the amounts described in footnote 11 to the table titled “Compensation of Named Executive Officers.” (5) With respect to Mr. Andrew Slifka, “Personal Benefits” includes the amounts described in footnote 12 to the table titled “Compensation of Named Executive Officers.”
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Grants of Plan-Based Awards
The following table sets forth the minimum threshold, target and maximum possible payout amounts, depending upon our financial performance in 2021, with respect to the short-term cash incentive awards granted during 2021 to our named executive officers under the STIP. With respect to the long-term cash incentive awards granted during 2021 to our named executive officers under the LTCIP, we use competitive benchmark information developed by BDO and take into account our performance, the applicable named executive officer’s performance and other compensation earned by such named executive officer in 2021 to determine an award amount that may be earned by each named executive officer without reference to “threshold”, “target” or “maximum” amounts.
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Name | | Award Type | | Threshold ($) | | Target ($) | | Maximum ($) |
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Eric Slifka | | STIP |
| 100,000 |
| 1,000,000 |
| 2,000,000 | |
| | LTCIP | | — | | — | | — | |
Gregory B. Hanson | | STIP |
| 50,000 |
| 300,000 |
| 600,000 | |
| | LTCIP | | — | | — | | — | |
Mark A. Romaine | | STIP |
| 57,500 |
| 300,000 |
| 600,000 | |
| | LTCIP | | — | | — | | — | |
Matthew Spencer | | STIP |
| 30,000 |
| 300,000 |
| 600,000 | |
| | LTCIP | | — | | — | | — | |
Jez Langhorn | | STIP |
| 47,500 |
| 475,000 |
| 950,000 | |
| | LTCIP | | — | | — | | — | |
Daphne H. Foster (3) | | STIP | | 50,000 | | 500,000 | | 1,000,000 | |
| | LTCIP | | — | | — | | — | |
Edward J. Faneuil (3) | | STIP |
| 50,000 |
| 500,000 |
| 1,000,000 | |
| | LTCIP | | — | | — | | — | |
Andrew Slifka (3) | | STIP | | 47,500 | | 475,000 | | 950,000 | |
| | LTCIP | | — | | — | | — | |
(1) | For calendar year 2021, each named executive officer’s 2020 STIP award consisted of the STIP Performance Component (weighted 50%) and the STIP Discretionary Component (weighted 50%). Amounts shown represent the “threshold,” “target” and “maximum” amounts payable under the STIP awards. On February 24, 2022, the Compensation Committee determined that two hundred percent (200%) of the STIP Performance Component and two hundred percent (200%) of the STIP Discretionary Component were earned by the named executive officers for calendar year 2021. Actual payout of the STIP awards (the Performance Component and the Discretionary Component) for calendar year 2021 is shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table above. |
(2) | For each named executive officer who was granted a 2021 LTCIP Award, 33.4% of such award vests on July 10, 2023, another 33.3% of such award vests on July 10, 2024 and the final 33.3% of such award vests on July 10, 2025. |
(3) | Ms. Foster and Mr. Andrew Slifka forfeited the awards shown upon the termination of their employment during 2021. Mr. Faneuil’s awards were accelerated in accordance with the provisions of his 2019 employment agreement, |
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Outstanding Equity Awards at Fiscal Year End
The following table presents the full amount of the equity awards held by our named executive officers as of December 31, 2021, which consist solely of phantom units granted under the LTIP. The awards shown on the table below were the only equity awards held by the named executive officers at the end of the last fiscal year:
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| | | | Unit Awards |
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| | | | Number of | | Market Value of |
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| | | | Units That Have | | Units That Have |
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Name | | Grant Date | | Not Vested (#) | | Not Vested ($) (2) |
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Eric Slifka | | August 16, 2017 (1) | | 65,512 |
| 1,538,877 | |
Gregory B. Hanson | | August 16, 2017 (1) | | 2,388 | | 56,094 | |
Mark A. Romaine | | August 16, 2017 (1) | | 25,365 | | 595,824 | |
Matthew Spencer | | August 16, 2017 (1) | | 4,775 |
| 112,165 | |
Jez Langhorn | | — | | — |
| — | |
Daphne H. Foster | | — | | — | | — | |
Edward J. Faneuil | | — | | — | | — | |
Andrew Slifka | | — | | — | | — | |
(1) | The phantom units granted on August 16, 2017 vest over a |
(2) | The market values of the phantom unit awards shown in the table above were calculated based on the closing price of $23.49 per common unit on December 31, 2021. |
Units Vested in the 2021 Fiscal Year
The following table presents phantom units awarded to the named executive officers that vested during the year ended December 31, 2021:
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| | Unit Awards |
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| Number of |
| Market Value of |
|
| | Vested | | Vested |
|
Name | | Phantom Units (#) | | Phantom Units ($) |
|
Eric Slifka (1) |
| 57,323 |
| 1,536,830 | |
Gregory B. Hanson |
| 2,090 |
| 56,029 | |
Mark A. Romaine (1) | | 22,196 | | 595,075 | |
Matthew Spencer (1) | | 4,180 | | 112,066 | |
Jez Langhorn | | — | | — | |
Daphne H. Foster |
| 18,850 |
| 505,369 | |
Edward J. Faneuil (1)(2) |
| 38,060 |
| 1,020,389 | |
Andrew Slifka |
| 12,016 |
| 322,149 | |
(1) | The market values of these phantom units shown in the table above were calculated based on the closing price of $26.81 per common unit on July 30, 2021, which was the last day on which the market was open immediately prior to the vesting date of such phantom units. |
(2) | The phantom units held by Mr. |
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Potential Payments upon a Change of Control or Termination
The following tables show potential payments to each of our named executive officers under contracts, agreements, plans or arrangements, whether written or unwritten (including the employment agreements with each of our named executive officers that were in effect as of December 31, 2021), for various scenarios involving a change of control or termination of employment of each such named executive officer assuming a December 31, 2021 termination date. In addition, amounts reflected in the tables below with respect to LTIP awards were calculated based on the closing price of our common units of $23.49 per unit as of December 31, 2021.
LTIP Awards. Upon a change of control event, all outstanding phantom units held by our named executive officers that have not otherwise vested automatically will become fully vested, which is reflected appropriately in the tables below.
LTCIP Awards. Certain of our named executive officers were granted a 2021 LTCIP Award, a 2020 LTCIP Award, and a 2019 LTCIP Award under the LTCIP. Upon a change of control event, the unvested portion of each of the LTCIP Awards held by our named executive officers will become fully vested, which is reflected in the tables below.
Eric Slifka
If Mr. Slifka’s employment is terminated for any reason, he shall be paid (i) all amounts of his base salary due and owing up through the date of termination, (ii) any earned but unpaid bonus, (iii) all reimbursements of expenses appropriately and timely submitted, and (iv) any and all other amounts, including vacation pay, that may be due to him as of the date of termination (the “Eric Slifka Accrued Obligations”).
If Mr. Slifka’s employment is terminated by death or “Disability” (as defined in the employment agreement), he (or his estate) will be paid (i) the Eric Slifka Accrued Obligations, plus (ii) a lump sum payment equal to his then base salary multiplied by 200%, plus (iii) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200%, plus (iv) his interests in the long-term incentive plans, including (a) the pro-rated cash incentive amount, if any, earned under his Long-Term Performance-Based Cash Incentive Plan awards and (b) the amounts of cash and/or securities due as a result of the automatic vesting of Mr. Slifka’s interests in certain long-term incentive plans, plus (v) group health and similar insurance premiums on behalf of his spouse and dependents, if any, for 24 months following the date of termination.
If Mr. Slifka’s employment is terminated by our general partner without “Cause” or by Mr. Slifka for reasons constituting “Constructive Termination,” each as defined in the employment agreement, he shall be paid (i) the Eric Slifka Accrued Obligations, plus (ii) a lump sum payment equal to his then base salary multiplied by 200% (provided, however, that this multiplier shall be 300% if Mr. Slifka terminates his employment for reasons constituting Constructive Termination and such termination occurs within 12 months following a “Change in Control” (as defined in the employment agreement)), plus (iii) an amount equal to the target incentive amount under the then applicable short-term incentive plan multiplied by 200% (provided, however, that this multiplier shall be 300% if Mr. Slifka terminates his employment for reasons constituting Constructive Termination and such termination occurs within 12 months following a Change in Control), plus (iv) his interests in the long-term incentive plans, including (a) the pro-rated cash incentive amount, if any, earned under his Long-Term Performance-Based Cash Incentive Plan awards and (b) the amounts of cash and/or securities due as a result of the automatic vesting of Mr. Slifka’s interests in certain long-term incentive plans, plus (v) group health and similar insurance premiums on behalf of his spouse and dependents, if any, for 24 months following the date of termination. If Mr. Slifka terminates his employment for reasons of Constructive Termination but such termination does not occur within 12 months following a Change in Control and Mr. Slifka secures employment within 12 months of the date of termination, he shall repay to our general partner one-half of the cash received from our general partner pursuant to (ii) and (iii) above.
If Mr. Slifka’s employment is terminated by our general partner for Cause, Mr. Slifka will be paid the Eric Slifka Accrued Obligations. If Mr. Slifka’s employment agreement is not renewed by our general partner and he does not continue to serve as our general partner’s President and Chief Executive Officer following the expiration of his employment agreement (a “Non-Renewal”), he shall be paid (i) the Eric Slifka Accrued Obligations, plus (ii) a lump sum
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payment equal to 200% of his then base salary, plus the performance-based and discretionary components, if any, of his STIP award for such year.
Upon a Change of Control, the unvested portions of any outstanding LTCIP Awards and outstanding phantom units held by Mr. Slifka automatically shall become fully vested.
| | | | | | | | | | | | | |
| | | | | | | | Termination by general | | |
| ||
| | | | | | | | partner without Cause / | | |
| ||
| | | | | | | | Constructive Termination / | | |
| ||
| | | | | | | | Breach by general partner | | |
| ||
|
| Change in |
| |
| |
| No Change |
| With a Change |
| |
|
| | Control | | Death | | Disability | | in Control | | in Control | | Nonrenewal |
|
Name | | ($) | | ($) | | ($) | | ($) | | ($) | | ($)(1) |
|
Eric Slifka | | | | | | | | | | | | | |
Severance Amount |
| — |
| 4,000,000 |
| 4,000,000 |
| 4,000,000 |
| 6,000,000 |
| 2,500,000 | |
LTIP awards |
| 1,538,877 |
| 1,538,877 |
| 1,538,877 |
| 1,538,877 |
| 1,538,877 |
| — | |
LTCIP award | | 7,599,200 | | 7,599,200 | | 7,599,200 | | 7,599,200 | | 7,599,200 | | — | |
Fringe benefits |
| — |
| 59,085 |
| 59,085 |
| 59,085 |
| 59,085 |
| — | |
Life insurance benefits |
| — |
| 500,000 |
| — |
| — |
| — |
| — | |
Total |
| 9,138,077 |
| 13,697,162 |
| 13,197,162 |
| 13,197,162 |
| 15,197,162 |
| 2,500,000 | |
(1) | Intheeventofnon-renewal,forpurposesofthiscalculation,wehaveassumedthatMr.Slifkawouldreceivepaymentof(a) 100%oftheperformance-basedcomponent($500,000),and(b) |
Gregory B. Hanson
If Mr. Hanson’s employment is terminated for any reason, Mr. Hanson shall be paid (i) all amounts of his base salary due and owing up through the date of termination, (ii) all earned, but unpaid, bonuses, (iii) all reimbursements of expenses appropriately and timely submitted, and (iv) any and all other amounts, including vacation pay, that may be due to his as of the date of termination (the “Hanson Accrued Obligations”).
If Mr. Hanson’s employment is terminated by death or “Disability” (as defined in the employment agreement), he (or his estate) will be paid or receive (i) the Hanson Accrued Obligations, plus (ii) a lump sum payment equal to 200% of his then base salary, plus (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of his cash or equity interests in long-term incentive plans, plus (v) group health and similar insurance premiums on behalf of his and his spouse and dependents, if any, for 18 months following the date of termination.
If Mr. Hanson’s employment is terminated by our general partner without “Cause” or by Mr. Hanson for reasons constituting “Constructive Termination” (each quoted term as defined in the employment agreement), Mr. Hanson shall be paid (i) the Hanson Accrued Obligations, plus (ii) a lump sum payment equal to 200% of his then base salary, plus (iii) an amount equal to 200% of target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of his cash and equity interests in long-term incentive plans, (v) group health and similar insurance premiums on behalf of his spouse and dependents, if any, for 18 months following the date of termination, plus (vi) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Mr. Hanson pursuant to Section 4999 of the Code.
If Mr. Hanson’s employment agreement is not renewed by our general partner and he does not continue to serve as our general partner’s Chief Financial Officer following the expiration of his employment agreement pursuant to a different employment agreement with our general partner, he shall be paid (i) the Hanson Accrued Obligations, (ii) a lump sum payment equal to 200% of his then base salary, and (iii) the performance-based and discretionary components, if any, of his STIP award for such year.
Upon a Change of Control, the unvested portions of any outstanding LTCIP Awards and outstanding phantom units held by Mr. Hanson automatically shall become fully vested.
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| | | | | | | | | | | | | |
| | | | | | | | Termination by general | | |
| ||
| | | | | | | | partner without Cause / | | |
| ||
| | | | | | | | Constructive Termination / | | |
| ||
| | | | | | | | Breach by general partner | | |
| ||
|
| Change in |
| |
| |
| No Change |
| With a Change |
| |
|
| | Control | | Death | | Disability | | in Control | | in Control | | Nonrenewal |
|
Name | | ($) | | ($) | | ($) | | ($) | | ($) | | ($)(1) |
|
Gregory B. Hanson | | | | | | | | | | | | | |
Severance Amount |
| — | | 1,400,000 | | 1,400,000 | | 1,400,000 | | 1,400,000 | | 950,000 | |
LTIP awards |
| — | | — | | — | | — | | — | | — | |
LTCIP award | | — | | — | | — | | — | | — | | — | |
Fringe benefits |
| — | | 44,249 | | 44,249 | | 44,249 | | 44,249 | | — | |
Life insurance benefits |
| — | | 500,000 | | — | | — | | — | | — | |
Total |
| — |
| 1,944,249 |
| 1,444,249 |
| 1,444,249 |
| 1,444,249 |
| 950,000 | |
114
(1) |
|
Mark A. Romaine
If Mr. Romaine’s employment is terminated for any reason, Mr. Romaine shall be paid (i) all amounts of his base salary due and owing up through the date of termination, (ii) all earned, but unpaid, bonuses, (iii) all reimbursements of expenses appropriately and timely submitted, and (iv) any and all other amounts, including vacation pay, that may be due to him as of the date of termination (the “Romaine Accrued Obligations”).
If Mr. Romaine’s employment is terminated by death or “Disability” (as defined in the employment agreement), he (or his estate) will be paid (i) the Romaine Accrued Obligations, (ii) a lump sum payment equal to 200% of his then base salary, (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, (iv) acceleration of vesting of his cash or equity interests in certain long-term incentive plans, and (v) group health and similar insurance premiums on behalf of him and his spouse and dependents, if any, for 18 months following the date of termination.
If Mr. Romaine’s employment is terminated by our general partner without “Cause” or by Mr. Romaine for reasons constituting “Constructive Termination” (each quoted term as defined in the employment agreement), Mr. Romaine shall be paid (i) the Romaine Accrued Obligations, (ii) a lump sum payment equal to 200% of his then base salary, (iii) an amount equal to 200% of target incentive amount under the then applicable short-term incentive plan, (iv) acceleration of vesting of his cash and equity interests in long-term incentive plans, (v) group health and similar insurance premiums on behalf of his spouse and dependents, if any, for 18 months following the date of termination, and (vi) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Mr. Romaine pursuant to Section 4999 of the Code.
Further, if Mr. Romaine’s employment is terminated by our general partner without Cause or Mr. Romaine terminates his employment for Constructive Termination, at any time within three (3) months before a Change in Control and twelve (12) months following a Change of Control (as defined in the employment agreement), then, in addition to the foregoing severance compensation and benefits, Mr. Romaine shall receive 100% accelerated vesting on any and all outstanding Partnership options, restricted units, phantom units, unit appreciation rights and other similar rights (under the LTIP or otherwise) held by Mr. Romaine as in effect on the date of termination, such accelerated vesting to occur on the later of (i) the date of termination, or (ii) the date of the Change of Control.
If Mr. Romaine’s employment agreement is not renewed by our general partner and he does not continue to serve as our general partner’s Chief Operating Officer following the expiration of his employment agreement pursuant to a different employment agreement with our general partner, he shall be paid (i) the Romaine Accrued Obligations, plus (ii) a lump sum payment equal to 200% of his then base salary, plus (iii) the performance-based and discretionary components, if any, of his STIP award for such year.
112
Upon a Change of Control, the unvested portions of any outstanding LTCIP Awards and outstanding phantom units held by Mr. Romaine automatically shall become fully vested.
| | | | | | | | | | | | | |
| | | | | | | | Termination by general | | |
| ||
| | | | | | | | partner without Cause / | | |
| ||
| | | | | | | | Constructive Termination / | | |
| ||
| | | | | | | | Breach by general partner | | |
| ||
|
| Change in |
| |
| |
| No Change |
| With a Change |
| |
|
| | Control | | Death | | Disability | | in Control | | in Control | | Nonrenewal |
|
Name | | ($) | | ($) | | ($) | | ($) | | ($) | | ($)(1) |
|
Mark A. Romaine | | | | | | | | | | | | | |
Severance Amount |
| — | | 2,300,000 | | 2,300,000 | | 2,300,000 | | 2,300,000 | | 1,437,500 | |
LTIP awards |
| 595,824 | | 595,824 | | 595,824 | | 595,824 | | 595,824 | | — | |
LTCIP award | | 3,166,000 | | 3,166,000 | | 3,166,000 | | 3,166,000 | | 3,166,000 | | — | |
Fringe benefits |
| — | | 41,482 | | 41,482 | | 41,482 | | 41,482 | | — | |
Life insurance benefits |
| — | | 500,000 | | — | | — | | — | | — | |
Total |
| 3,761,824 |
| 6,603,306 |
| 6,103,306 |
| 6,103,306 |
| 6,103,306 |
| 1,437,500 | |
115
(1) |
non-renewal,forpurposesofthiscalculation,wehaveassumedthatMr.
|
Matthew Spencer
If Mr. Spencer’s employment is terminated for any reason, he (or his estate, as applicable) shall be paid (i) all amounts of base salary due and owing up through the date of termination, (ii) any earned but unpaid bonus, (iii) all reimbursements of eligible business expenses, and (iv) any and all other amounts, including vacation pay, that may be due to him as of the date of termination (collectively, the “Spencer Accrued Obligations”).
If Mr. Spencer’s employment is terminated due to his death or disability, he (or his estate, as applicable) will be paid (i) the Spencer Accrued Obligations, plus (ii) a lump sum payment equal to 200% of his base salary, plus (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of his cash and equity interests in certain long-term incentive plans, plus (v) group health and similar insurance premiums on behalf of him and his spouse and dependents, if any, for 18 months following the date of termination.
If Mr. Spencer’s employment is terminated by our general partner without “Cause” or by Mr. Spencer for reasons constituting “Constructive Termination” (each as defined in the employment agreement), he shall be paid (i) the Spencer Accrued Obligations, plus (ii) a lump sum payment equal to 200% of his base salary, plus (iii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan, plus (iv) acceleration of vesting of his cash and equity interests in certain long-term incentive plans, plus (v) group health and similar insurance premiums on behalf of him and his spouse and dependents, if any, for 18 months following the date of termination, plus (vi) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Mr. Spencer pursuant to Section 4999 of the Code.
If Mr. Spencer’s employment agreement is not renewed by our general partner and he does not continue to serve as our general partner’s Chief Accounting Officer following the expiration of his employment agreement pursuant to a different employment agreement with our general partner, the employment agreement provides that he shall be paid (i) the Spencer Accrued Obligations, (ii) a lump sum payment equal to 200% of his then base salary, and (iii) the performance-based and discretionary components, if any, of his STIP award for such year.
Upon a Change of Control, the unvested portions of any outstanding LTCIP Awards and outstanding phantom units held by Mr. Spencer automatically shall become fully vested.
113
| | | | | | | | | | | | | |
| | | | | | | | Termination by general | | |
| ||
| | | | | | | | partner without Cause / | | |
| ||
| | | | | | | | Constructive Termination / | | |
| ||
| | | | | | | | Breach by general partner | | |
| ||
|
| Change in |
| |
| |
| No Change |
| With a Change |
| |
|
| | Control | | Death | | Disability | | in Control | | in Control | | Nonrenewal |
|
Name | | ($) | | ($) | | ($) | | ($) | | ($) | | ($)(1) |
|
Matthew Spencer | | | | | | | | | | | | | |
Severance Amount |
| — | | 1,200,000 | | 1,200,000 | | 1,200,000 | | 1,200,000 | | 750,000 | |
LTIP awards |
| 112,165 | | 112,165 | | 112,165 | | 112,165 | | 112,165 | | — | |
LTCIP award | | 1,183,150 | | 1,183,150 | | 1,183,150 | | 1,183,150 | | 1,183,150 | | — | |
Fringe benefits |
| — | | 41,482 | | 41,482 | | 41,482 | | 41,482 | | — | |
Life insurance benefits |
| — | | 500,000 | | — | | — | | — | | — | |
Total |
| 1,295,315 |
| 3,036,797 |
| 2,536,797 |
| 2,536,797 |
| 2,536,797 |
| 750,000 | |
117
(1) |
|
Jez Langhorn
If Mr. Langhorn’s employment is terminated for any reason, Mr. Langhorn shall be paid (i) all amounts of his base salary due and owing up through the date of termination, (ii) all earned, but unpaid, bonuses, (iii) all reimbursements of expenses appropriately and timely submitted, and (iv) any and all other amounts, including vacation pay, that may be due to his as of the date of termination (the “Langhorn Accrued Obligations”).
If Mr. Langhorn’s employment is terminated by death or “Disability” (as defined in the employment agreement), he (or his estate) will be paid or receive (i) the Langhorn Accrued Obligations, plus (ii) a lump sum payment equal to his then base salary, plus (iii) group health and similar insurance premiums on behalf of his and his spouse and dependents, if any, for 18 months following the date of termination.
If Mr. Langhorn’s employment is terminated by our general partner without “Cause” or by Mr. Langhorn for reasons constituting “Constructive Termination” (each quoted term as defined in the employment agreement), Mr. Langhorn shall be paid (i) the Langhorn Accrued Obligations, plus (ii) a lump sum payment equal to his then base salary, plus (iii) group health and similar insurance premiums on behalf of his spouse and dependents, if any, for 18 months following the date of termination, plus (iv) a potential gross-up payment in the event that any of the payments described above result in taxes being imposed on Mr. Langhorn pursuant to Section 4999 of the Code.
If Mr. Langhorn’s employment agreement is not renewed by our general partner and he does not continue to serve as our general partner’s Chief Human Resources Officer following the expiration of his employment agreement pursuant to a different employment agreement with our general partner, he shall be paid (i) the Langhorn Accrued Obligations, plus (ii) a lump sum payment equal to his then base salary.
Upon a Change of Control, the unvested portions of any outstanding LTCIP Awards and outstanding phantom units held by Mr. Langhorn automatically shall become fully vested.
114
| | | | | | | | | | | | | |
| | | | | | | | Termination by general | | |
| ||
| | | | | | | | partner without Cause / | | |
| ||
| | | | | | | | Constructive Termination / | | |
| ||
| | | | | | | | Breach by general partner | | |
| ||
|
| Change in |
| |
| |
| No Change |
| With a Change |
| |
|
| | Control | | Death | | Disability | | in Control | | in Control | | Nonrenewal |
|
Name | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) |
|
Jez Langhorn | | | | | | | | | | | | | |
Severance Amount |
| — | | 475,000 | | 475,000 | | 475,000 | | 475,000 | | 475,000 | |
LTIP awards |
| — | | — | | — | | — | | — | | — | |
LTCIP award | | — | | — | | — | | — | | — | | — | |
Fringe benefits |
| — | | 41,207 | | 41,207 | | 41,207 | | 41,207 | | — | |
Life insurance benefits |
| — | | 500,000 | | — | | — | | — | | — | |
Total |
| — |
| 1,016,207 |
| 516,207 |
| 516,207 |
| 516,207 |
| 475,000 | |
Daphne H. Foster
As described above, Ms. Foster terminated employment as a result of her retirement on August 31, 2021. Ms. Foster was entitled to receive the following severance payments and benefits as a result of her retirement: (a) a $2,810,000 bonus awarded to Ms. Foster by the Compensation Committee in recognition of her years of service to the Partnership and (b) a $1,750,000 bonus awarded to Ms. Foster by the Compensation Committee in lieu of long-term cash incentive awards under the LTCIP for calendar years 2020 and 2021.
Edward. J. Faneuil
As described above, Mr. Faneuil terminated employment as a result of his death on May 17, 2021. Mr. Faneuil’s estate was entitled to receive the following severance payments and benefits as a result of his death: (a) severance payments made pursuant to his employment agreement upon termination of his employment due to death, including (i) a lump sum payment equal to 200% of his then base salary ($1,000,000), plus (ii) an amount equal to 200% of the target incentive amount under the then applicable short-term incentive plan ($1,000,000), plus (iii) acceleration of vesting of his cash interests in certain long-term incentive plans ($3,670,389), plus (iv) group health and similar insurance premiums on behalf of him and his spouse and dependents for 18 months following the date of termination ($15,696); (b) a $1,500,000 bonus awarded to Mr. Faneuil by the Compensation Committee in recognition of his years of service to the Partnership; (c) a $1,500,000 bonus awarded to Mr. Faneuil by the Compensation Committee in lieu of long-term cash incentive awards under the LTCIP for calendar years 2020 and 2021; and (d) base salary for accrued but not taken days of paid time off in the amount of $75,099.
Andrew Slifka
As described above, Mr. Andrew Slifka terminated employment as a result of his resignation on September 27, 2021 and in connection therewith forfeited the right to receive any severance payments he may have otherwise been entitled to under his employment agreement, other than the so-called “Garden Leave” payments pursuant to the non-competition and non-solicitation covenants set forth in Annex I to his 2019 employment agreement with the Partnership.
Other Benefits
Pension Benefits
The table below sets forth information regarding the present value as of December 31, 2021 of the accumulated benefits of our named executive officers under the Global Partners LP Pension Plan and, with respect to Mr. Faneuil, the Global and Alliance Deferred Compensation Agreements. Amounts with respect to the Global and Alliance Deferred Compensation Agreements are reflected in the table below because they represent a fixed entitlement.
115
Pension Benefits at December 31, 2021
| | | | | | | | | |
|
| |
| Number of Years |
| Present Value of |
| Payments During |
|
Name | | Plan Name | | Credited Service (#) | | Accumulated Benefit ($) | | Last Fiscal Year ($) |
|
Eric Slifka |
| (3) |
| 23 |
| 831,897 |
| — | |
Gregory B. Hanson | | — | | — | | — | | — | |
Mark A. Romaine | | (3) | | 11 | | 315,141 | | — | |
Matthew Spencer | | — | | — | | — | | — | |
Jez Langhorn | | — | | — | | — | | — | |
Daphne H. Foster (1) |
| (3) | | 3 |
| — |
| 52,711 | |
Edward J. Faneuil (2) |
| (3) | | 19 |
| — |
| 1,066,394 | |
Edward J. Faneuil (2) |
| (4) | | n/a |
| — |
| 560,903 | |
Edward J. Faneuil (2) | | (5) | | n/a | | | | 560,903 | |
Edward J. Faneuil (2) |
| (6) | | n/a |
| — |
| 159,355 | |
Andrew Slifka |
| — | | — | | — | | — | |
(1) | Upon her termination of employment as a result of her retirement, Ms. Foster received the payments indicated. |
(2) | Upon his termination of employment as a result of his death, Mr. Faneuil’s estate received the payments indicated. |
(3) | Global Partners LP Pension Plan |
(4) | Global |
Global Partners LP Pension Plan
Effective December 31, 2009, the Global Partners LP Pension Plan (the “Global Pension Plan”) was amended to freeze participation in and benefit accruals under the Global Pension Plan. Prior to the freeze, all employees who (1) were 21 years of age or older, (2) were not covered by a collective bargaining agreement providing for union pension benefits, and (3) had been employed by our predecessor, our general partner or one of our operating subsidiaries for one year prior to enrollment in the Global Pension Plan were eligible to participate in the Global Pension Plan. An employee is fully vested in benefits under the Global Pension Plan after completing five years of service or upon termination due to death or disability. Certain employees are entitled to a supplemental benefit that vested over five years with 20% vesting on each December 31 beginning in 2010 and lasting through 2014. When an employee retires at age 65 or, if later, upon reaching five years' service, the employee can elect to receive a monthly annuity or an equivalent lump sum payment. An employee's benefit payable at retirement is equal to (1) 23% of the employee's average monthly compensation for the five consecutive calendar years during which the employee received the highest amount of pay (“Average Compensation”) plus (2) 19.5% of the employee’s Average Compensation in excess of his monthly “covered compensation” for Social Security purposes, as provided in the Global Pension Plan. However, if an employee has completed less than 30 years of service on his termination at or after reaching age 65, the monthly benefit will be reduced by 1/30th for each year less than 30 years completed by the employee. When an employee retires at an age other than 65, the employee retirement benefit will be the actuarial equivalent of the benefit he or she would have received if he or she had retired at age 65. An employee who terminates employment after completing at least five years of service will be eligible for an early retirement benefit determined as described in the preceding sentence at any time after attaining age 60.
Benefits under the formula are based upon the employee’s highest consecutive five-year average compensation and are not subject to offset for social security benefits. Compensation for such purposes means compensation including overtime, but excluding bonuses, 50% of commissions, taxable fringe benefits, relocation allowances, transportation allowances, housing allowances, cash and DERs pursuant to any long-term incentive plan and any cash payable in lieu of group healthcare coverage.
116
Supplemental Executive Retirement Agreement
On December 31, 2009, our general partner entered into a SERP agreement with Edward J. Faneuil. Mr. Faneuil's SERP benefit became fully vested on December 31, 2014. The value of the SERP benefit to be provided under the agreement, expressed as a single lump sum payment, is $159,355 for Mr. Faneuil, which was paid to his estate following his termination of employment as a result of his death.
Global and Alliance Deferred Compensation Agreements
Our general partner and Mr. Faneuil entered into the Global Deferred Compensation Agreement, pursuant to which Mr. Faneuil was previously being paid the sum of $70,000 per year (the “Global Deferred Compensation”) in equal monthly installments of $5,833.33 on the first business day of each month for 15 years (180 months) prior to his death. As a result of Mr. Faneuil’s death prior to his receiving all of the aggregate amount of the Global Deferred Compensation, our general partner paid Mr. Faneuil’s beneficiary, within 60 days of the date of his death, a single lump sum payment in an amount equal to the present value of the remaining payments that would have been paid to Mr. Faneuil, which was $531,736.
Alliance and Mr. Faneuil also entered into the Alliance Deferred Compensation Agreement, the terms of which, including, without limitation, the payment terms thereunder, are on the same terms as those of the Global Deferred Compensation Agreement. As a result of Mr. Faneuil’s death prior to his receiving all of the aggregate amount under the Alliance Deferred Compensation Agreement, our general partner paid Mr. Faneuil’s beneficiary, within 60 days of the date of his death, a single lump sum payment in an amount equal to the present value of the remaining payments that would have been paid to Mr. Faneuil, which was $531,736.
Compensation of Directors
The following table sets forth (i) certain information concerning the compensation earned by our directors in 2021, and (ii) the aggregate amounts of stock awards and option awards, if any, held by each director at the end of the last fiscal year:
| | | | | | | |
| | Fees Earned | | | | |
|
| | or Paid in | | LTCIP | | |
|
Name | | Cash ($) | | Awards ($) | | Total ($) |
|
Richard Slifka (1) |
| 75,500 |
| — |
| 75,500 | |
Eric Slifka (2) |
| — |
| — |
| — | |
Andrew Slifka (2)(3) |
| — |
| — |
| — | |
Kenneth I. Watchmaker (1)(3) |
| 229,500 |
| 288,000 |
| 517,500 | |
Robert J. McCool (1) |
| 214,500 |
| 155,000 |
| 369,500 | |
Jaime Pereira (1) | | 20,250 | | — | | 20,250 | |
John T. Hailer (1) | | 214,500 | | 155,000 | | 369,500 | |
Robert W. Owens (1) | | 214,500 | | 45,000 | | 259,500 | |
Daphne H. Foster (2)(3) |
| — |
| — |
| — | |
(1) | As of December 31,
|
(3) | Messrs. Andrew Slifka and
|
Employees of our general partner who also serve as directors do not receive additional compensation. In 2021, directors who are not employees of our general partner (1) received: (a) a $67,500 annual cash retainer; (b) $1,000 for each meeting of the board of directors attended; (c) $2,000 for each audit committee meeting attended (limited to payment for one committee meeting per day); (d) $1,000 for each committee meeting other than the audit committee meeting attended (limited to payment for one committee meeting per day); and (e) a $100,000 supplemental retainer for
117
audit committee oversight, and (2) are eligible to participate in the LTIP and the LTCIP. In addition, the chair of the audit committee receives an additional $15,000 per year.
Each director also is reimbursed for out-of-pocket expenses in connection with attending meetings of the board of directors or committees.
On October 22, 2021, Mr. Watchmaker, Mr. McCool, Mr. Hailer and Mr. Owens, respectively, were awarded LTCIP grants in the amounts of $288,000, $155,000, $155,000 and $45,000 in respect of services rendered in 2020. Each such LTCIP award will fully vest as of July 10, 2024, subject to continued service as a director through such date.
On October 5, 2020, Mr. Watchmaker, Mr. McCool and Mr. Hailer, respectively, were awarded LTCIP grants in the amounts of $173,000, $128,000 and $128,000 in respect of services rendered in 2019. Each such LTCIP award will fully vest as of September 25, 2023, subject to continued service as a director through such date.
On August 7, 2019, Mr. Watchmaker, Mr. McCool, Mr. McKown and Mr. Hailer, respectively, were awarded LTCIP grants in the amounts of $230,000, $160,000, $125,000 and $80,000 in respect of services rendered in 2018. Each such LTCIP award will fully vest as of August 10, 2022, subject to continued service as a director through such date.
On March 6, 2019, Mr. Watchmaker, Mr. McCool and Mr. McKown, respectively, were awarded LTCIP grants in the amounts of $140,000, $125,000, and $115,000 in respect of services rendered in 2017. Each such LTCIP award will fully vest as of March 1, 2022, subject to continued service as a director through such date. Upon his retirement on July 20, 2020, and in accordance with the determination of the Compensation Committee, Mr. McKown forfeited his August 27, 2017 LTIP award and each of his March 6, 2019 and August 7, 2019 LTCIP awards.
Each director will be fully indemnified by us for actions associated with being a director to the extent permitted under Delaware law.
Pay Ratio Disclosure
Each director will be fully indemnified by us for actions associated with being a director to the extent permitted under Delaware law.
120
Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr.Eric Slifka, our CEO.
For 2021, our last completed fiscal year:
● | The median of the annual total compensation of our employees (other than the CEO) was $17,201; and |
● | The annual total compensation of
To put this into context, approximately 78% of our employee population consists of convenience store employees, approximately 38% of whom are employed on a part-time basis. Our part-time employees who work less than thirty hours per week receive (i)wages, and (ii)if eligible, sick time and/or 401(k) benefits, but are not eligible for vacation or other fringe benefits. In comparison, if we were to only look at our non-convenience store employee population, the median employee would be employed on a full-time basis, with a total annual compensation of $148,226 in 2021. The ratio of the annual total compensation of our CEO to this median employee was reasonably estimated to be 44 to 1. 118 To identity the median of the annual total compensation of all of our employees, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps:
119 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth as of February 22, 2022 the beneficial ownership of common units representing limited partner interests in Global Partners LP (“Units”) held by certain beneficial owners of more than five percent (5%) of the Units, by each director and named executive officer of Global GP LLC, the general partner of Global Partners LP (“General Partner”) and by all directors and executive officers of our General Partner as a group:
* Less than 1%
120
Equity Compensation Plan Table The following table summarizes information about our equity compensation plans as of December 31, 2021:
Item 13. Certain Relationships and Related Transactions, and Director Independence. As of February 22, 2022, affiliates of our general partner, including current directors and executive officers of our general partner, owned 6,170,957 common units representing 18.2% of the common units. In addition, our general partner owns a 0.67% general partner interest in us. Alfred A. Slifka, former Chairman of the board of our general partner, passed away on March 9, 2014. Mr. Alfred Slifka’s estate closed effective February 28, 2017 and his interests in our general partner and his beneficially owned interests in Global Partners LP and its affiliates were transferred to the Alfred A. Slifka 1990 Trust Under Article II-A (the “AS Article II-A Trust”) on that date. The Trustees of the AS Article II-A Trust include our President, Chief Executive Officer and Vice Chairman, Eric Slifka, and his siblings. Mr. Eric Slifka’s siblings have delegated to Eric Slifka voting control over the Global Partners LP securities held by the AS Article II-A Trust. Steven McCool, the son of Robert J. McCool, one of our independent directors, is an employee of Global GP LLC. During our fiscal year ended December 31, 2021, his total compensation earned was approximately $178,000. Maxwell Foster, the son of Daphne H. Foster, our retired Chief Financial Officer, is an employee of Global GP LLC. During our fiscal year ended December 31, 2021, his total compensation earned was approximately $600,000. James Cook, the son-in-law of Richard Slifka, our Chairman, and the brother-in-law of Andrew Slifka, our 121 former Executive Vice President and director, is an employee of Global GP LLC. During our fiscal year ended December 31, 2021, his total compensation earned was approximately $176,000. Each of Eric Slifka (our President, Chief Executive Officer and Vice-Chairman) and Andrew Slifka (our former Executive Vice President and director) owns a 20% interest in an entity which leases real property located in Vineyard Haven, Massachusetts to our subsidiary, Drake Petroleum Company, Inc., for the operation of a gasoline station and convenience store. Each of Eric Slifka and Andrew Slifka earned approximately $50,000 during 2021 from their investment in such entity. Operational Stage
122 Noncompetition We are a party to an omnibus agreement with Mr. Richard Slifka and our general partner that addresses the agreement of Mr. Richard Slifka not to compete with us and to cause his affiliates not to compete with us under certain circumstances. The omnibus agreement also provided for certain environmental indemnity obligations of Global Petroleum Corp. and certain of its affiliates, which indemnity obligations have either expired or been resolved. In connection with our acquisition of Alliance Energy LLC in 2012, Richard Slifka, Chairman of our general partner, entered into a business opportunity agreement with our general partner containing noncompetition provisions which are broader than those contained in the omnibus agreement in order to encompass our expanded lines of business since 2005. Pursuant to the omnibus agreement and the business opportunity agreement, Richard Slifka agreed, for himself and his respective affiliates, not to engage in, acquire or invest in any of the following businesses: (1) the wholesale and/or retail marketing, sale, distribution and transportation (other than transportation by truck) of refined petroleum products, crude oil, ethanol, propane and biofuels; (2) the storage of refined petroleum products and/or any of the other products identified in (1) or asphalt in connection with any of the activities described in (1); (3) bunkering; and (4) such other activities in which the Partnership, and its direct or indirect subsidiaries, or any of their businesses are engaged or, to the knowledge of Richard Slifka, are planning to become engaged. These noncompetition obligations survive under the omnibus agreement for so long as Richard Slifka, Eric Slifka and/or any of their respective affiliates, individually or as part of a group, control our general partner, and under the business opportunity agreement indefinitely. Pursuant to Eric Slifka’s and Andrew Slifka’s respective employment agreement with our general partner, each of Eric Slifka and Andrew Slifka agreed, for themselves and their respective affiliates, to not work (as an employee, consultant, advisor, director or otherwise), engage in, acquire or invest in any of the following businesses: (1) the wholesale or retail marketing, sale, distribution and transportation of refined petroleum products, crude oil, renewable fuels (including ethanol and biofuels), and natural gas liquids (including ethane, butane, propane and condensates); (2) the storage of refined petroleum products and/or any of the other products identified in clause (1) above in connection with any of the activities described in said clause (1); (3) the retail sale of convenience store items and sundries and related food service, whether or not related to the retail sale of refined petroleum products including, without limitation, gasoline; (4) bunkering; and (5) any other business in which the general partner or its affiliates (a) becomes engaged during the period that they are employed by the general partner or any of its affiliates, or (b) is preparing to become engaged as of the time that their employment with the general partner or any of its affiliates ends and, with respect to parts (a) and (b) of this clause (5), they have participated in or obtained Confidential Information about such business or anticipated business. Each of Eric Slifka and Andrew Slifka further agreed to not directly or indirectly solicit any employees, contractors, vendors, suppliers or customers of the general partner or any of its affiliates to cease to be employed by or otherwise do business with the general partner or any of its affiliates, or to reduce the same. The foregoing noncompetition and nonsolicitation restrictions may be waived only by the conflicts committee of the general partner’s board of directors. Eric Slifka’s and Andrew Slifka’s noncompetition and non-solicitation obligations survive for one year following the termination of their respective employment for any reason other than death or the termination of their employment by the general partner without Cause (as defined in their respective employment agreements). Andrew Slifka resigned in September 2021 and is observing the non-competition period under his employment agreement. In consideration for their respective noncompetition obligations, the general partner shall pay to each of Eric Slifka and Andrew Slifka a total payment equal to fifty percent (50%) of their highest annualized Base Salary (as defined in their respective employment agreements) within the two years preceding termination; provided, that the general partner shall have no obligation to make such payments in the event that Eric Slifka or Andrew Slifka breaches any of the terms of their noncompetition obligations. In addition, Eric Slifka’s and Andrew Slifka’s employment agreements include, and Eric Slifka and Andrew Slifka both agreed to, a confidentiality provision, which generally will continue for two years following Eric Slifka’s and Andrew Slifka’s termination of employment. Services Agreement We are party to a services agreement effective as of January 1, 2021 with various Slifka-owned entities and their shareholders and/or members (the “Slifka Entities Services Agreement”), pursuant to which we provide certain tax, 123 accounting, treasury, and legal support services and such Slifka entities pay us an annual services fee of $20,000. We believe the terms of this agreement are at least as favorable as could have been obtained from unaffiliated third parties. The Slifka Entities Services Agreement is for an indefinite term, and any party may terminate some or all of the services thereunder upon 90 days’ advance written notice. Revere Terminal Acquisition from Global Petroleum Corp. On January 14, 2015, we acquired our terminal located in Boston Harbor in Revere, Massachusetts (the “Revere Terminal”) from Global Petroleum Corp. for a purchase price of approximately $23.7 million. In the event that we sell, within eight years of the closing of the acquisition, all or substantially all of the real property underlying the Revere Terminal to a third party not affiliated with Global Petroleum Corp. or us and such third party does not intend to use the real property for petroleum-related purposes, then we will pay affiliates of the Slifka family an amount equal to fifty percent of the net proceeds (as defined in the purchase agreement) received by us in connection with such sale. On November 24, 2021, we entered into a purchase and sale Agreement (the “Purchase Agreement”) with Revere MA Owner LLC (the “Revere Buyer”) pursuant to which the Revere Buyer, a third party not affiliated with us, will acquire the Revere Terminal for a purchase price of $150.0 million in cash. We estimate that proceeds to us from the sale of the Revere Terminal after adjustments will be in excess of $100.0 million. Pursuant to the purchase agreement entered into in 2015, fifty percent (50%) of the net proceeds from the sale of the Revere Terminal to the Revere Buyer are expected to go to Richard Slifka and the AS Article II-A Trust. The disposition is expected to close in the first half of 2022. For additional information regarding the sale and subsequent leaseback arrangement, please see Part I, Items 1 and 2, “Business and Properties.” Relationship of Management with Global Petroleum Corp. Some members of our management team have been officers and/or directors of our former affiliate, Global Petroleum Corp. (which was dissolved in 2020). Messrs. Faneuil and Spencer spent a portion of their time providing services to Global Petroleum Corp. under a shared services agreement. That shared services agreement has been superseded by a new services agreement. Please read “— Policies Relating to Conflicts of Interest Conflicts of interest exist and may arise in the future as a result of the relationships between our general partner and its affiliates, on the one hand, and us and our unaffiliated limited partners, on the other hand. The directors and officers of our general partner have fiduciary duties to manage our general partner in a manner beneficial to its owners. At the same time, our general partner has a fiduciary duty to manage us in a manner beneficial to our unitholders and us. Our partnership agreement modifies and limits our general partner’s fiduciary duties to unitholders. Our partnership agreement also restricts the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under applicable Delaware law. The Delaware Revised Uniform Limited Partnership Act provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the fiduciary duties otherwise owed by a general partner to limited partners and the partnership. Under our partnership agreement, whenever a conflict arises between our general partner or its affiliates, on the one hand, and us or any other partner, on the other, our general partner will resolve that conflict. Our general partner will not be in breach of its obligations under our partnership agreement or its duties to us or our unitholders if the resolution of the conflict is:
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Our general partner may, but is not required to, seek the approval of such resolution from the conflicts committee of the board of directors of our general partner. If our general partner does not seek approval from the conflicts committee and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the third and fourth bullet points above, then it will be presumed that, in making its decision, the board acted in good faith, and in any proceeding brought by or on behalf of us or any limited partner of ours, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Unless the resolution of a conflict is specifically provided for in our partnership agreement, our general partner or the conflicts committee may consider any factors it determines in good faith to consider when resolving a conflict. When our partnership agreement requires someone to act in good faith, it requires that person to reasonably believe that he is acting in the best interests of the partnership, unless the context otherwise requires. Director Independence Please read Part III, Item 10, “Directors, Executive Officers and Corporate Governance” for information regarding director independence. Item 14. Principal Accounting Fees and Services. The audit committee of the board of directors of Global GP LLC selected Ernst & Young LLP, Independent Registered Public Accounting Firm, to audit the books, records and accounts of Global Partners LP for the 2021 and 2020 calendar years. The audit committee’s charter, which is available on our website at www.globalp.com, requires the audit committee to approve in advance all audit and non-audit services to be provided by our independent registered public accounting firm. All services reported in the audit, audit-related, tax and all other fees categories below were approved by the audit committee. Pre-approved fees to Ernst & Young LLP for the fiscal years ended December 31, 2021 and 2020 were as follows (in thousands):
125 PART IV Item 15. Exhibits and Financial Statement Schedules.
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