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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number: 001-36137
Sprague Resources LP
(Exact name of registrant as specified in its charter)
Delaware 45-2637964
(State of incorporation) (I.R.S. Employer Identification No.)
185 International Drive
Portsmouth, New Hampshire 03801
(Address of principal executive offices)
Registrant’s telephone number, including area code: (800225-1560
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Units Representing Limited Partner InterestsSRLPNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No  
The registrant had 26,226,255 common units outstanding as of August 5, 2021.


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Table of Contents

Part I – FINANCIAL INFORMATION
Item 1 — Condensed Consolidated Financial Statements
Sprague Resources LP
Condensed Consolidated Balance Sheets
(in thousands except unit amounts)
June 30,
2021
December 31,
2020
 (Unaudited)
Assets
Current assets:
Cash and cash equivalents$6,750 $3,771 
Accounts receivable, net158,200 193,015 
Inventories202,646 255,533 
Fair value of derivative assets115,329 145,957 
Other current assets17,022 67,406 
Total current assets499,947 665,682 
Fair value of derivative assets, long-term21,870 20,021 
Property, plant and equipment, net328,572 335,296 
Intangibles, net37,434 41,142 
Other assets, net20,362 22,252 
Goodwill115,037 115,037 
Total assets$1,023,222 $1,199,430 
Liabilities and unitholders’ equity
Current liabilities:
Accounts payable$50,969 $97,280 
Accrued liabilities76,575 46,645 
Fair value of derivative liabilities144,118 154,105 
Due to General Partner4,945 10,915 
Current portion of working capital facilities246,598 358,685 
Current portion of other obligations7,281 6,968 
Total current liabilities530,486 674,598 
Commitments and contingencies
Acquisition facility377,400 382,400 
Fair value of derivative liabilities, long-term26,968 20,240 
Other obligations, less current portion37,335 39,309 
Operating lease liabilities, less current portion 2,371 5,653 
Due to General Partner2,899 2,751 
Deferred income taxes15,572 15,784 
Total liabilities993,031 1,140,735 
Unitholders’ equity:
Common unitholders - public (8,052,406 and 9,995,069 units issued and outstanding as of June 30, 2021 and December 31, 2020, respectively)112,626 154,238 
Common unitholders - affiliated (18,173,849 and 12,951,236 units issued and outstanding as of June 30, 2021 and December 31, 2020, respectively)(60,910)(69,561)
Accumulated other comprehensive loss, net of tax(21,525)(25,982)
Total unitholders’ equity30,191 58,695 
Total liabilities and unitholders’ equity$1,023,222 $1,199,430 


The accompanying notes are an integral part of these financial statements.
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Sprague Resources LP
Unaudited Condensed Consolidated Income Statements
(in thousands except unit and per unit amounts)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Net sales$657,672 $358,214 $1,693,805 $1,318,093 
Cost of products sold (exclusive of depreciation and amortization)659,803 325,233 1,584,585 1,175,252 
Operating expenses19,148 18,471 38,379 39,283 
Selling, general and administrative16,719 18,923 41,958 38,956 
Depreciation and amortization8,258 8,518 16,741 17,115 
Total operating costs and expenses703,928 371,145 1,681,663 1,270,606 
Other operating income9,725  9,725  
Operating (loss) income(36,531)(12,931)21,867 47,487 
Other income  64 2 64 
Interest income77 72 143 248 
Interest expense(8,587)(10,788)(17,402)(22,074)
(Loss) income before income taxes(45,041)(23,583)4,610 25,725 
Income tax provision(562)(1,542)(1,433)(4,113)
Net (loss) income(45,603)(25,125)3,177 21,612 
Incentive distributions declared (2,072) (4,144)
Limited partners' interest in net (loss) income$(45,603)$(27,197)$3,177 $17,468 
Net (loss) income per limited partner unit:
Common - basic$(1.74)$(1.19)$0.13 $0.76 
Common - diluted$(1.74)$(1.19)$0.13 $0.76 
Units used to compute net income per limited partner unit:
Common - basic26,226,255 22,922,902 25,066,494 22,871,943 
Common - diluted26,226,255 22,922,902 25,066,494 22,937,273 
Distribution declared per unit$0.6675 $0.6675 $1.3350 $1.3350 










The accompanying notes are an integral part of these financial statements.
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Sprague Resources LP
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
(in thousands)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Net (loss) income$(45,603)$(25,125)$3,177 $21,612 
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on interest rate swaps
Net (loss) gain arising in the period(208)(1,257)1,598 (9,785)
Reclassification adjustment related to loss (gain) realized in income1,459 1,441 2,815 2,056 
Net change in unrealized gain (loss) on interest rate swaps1,251 184 4,413 (7,729)
Tax effect(10)(1)(34)60 
1,241 183 4,379 (7,669)
Foreign currency translation adjustment42 123 78 (191)
Other comprehensive income (loss)1,283 306 4,457 (7,860)
Comprehensive (loss) income$(44,320)$(24,819)$7,634 $13,752 


















The accompanying notes are an integral part of these financial statements.
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Sprague Resources LP
Unaudited Condensed Consolidated Statements of Unitholders’ Equity
(in thousands)
Common-
Public
Common-
Affiliated
Incentive Distribution RightsAccumulated
Other
Comprehensive
Loss
Total
Three Months Ended June 31, 2020 and 2021
Balance at March 31, 2020$194,513 $(48,474)$ $(27,854)$118,185 
Net loss(12,610)(14,568)2,053 — (25,125)
Other comprehensive income— — — 306 306 
Unit-based compensation397 458 — — 855 
Distributions paid in cash(7,139)(8,162)(2,072)— (17,373)
Distributions paid in units— (19)19 — — 
Units purchased by Sprague Holdings in Private Transaction(12,086)12,086 — —  
Balance at June 30, 2020$163,075 $(58,679)$ $(27,548)$76,848 
Balance at March 31, 2021$166,680 $(51,855)$ $(22,808)$92,017 
Net loss(16,346)(29,257) — (45,603)
        Other comprehensive income— — — 1,283 1,283 
Distributions paid in cash(6,787)(10,719) — (17,506)
Increase in affiliated units as a result of acquisition by Hartree Partners, LP(30,921)30,921 — —  
Balance at June 30, 2021$112,626 $(60,910)$ $(21,525)$30,191 
Six Months Ended June 30, 2020 and 2021
Balance at December 31, 2019$180,302 $(66,832)$ $(19,688)$93,782 
Net income8,229 9,258 4,125 — 21,612 
Other comprehensive loss— — — (7,860)(7,860)
Unit-based compensation588 673 — — 1,261 
Distributions paid in cash(14,242)(16,243)(2,072)— (32,557)
Distributions paid in units— 2,053 (2,053)—  
Units purchased by Sprague Holdings in Private Transaction(12,086)12,086 — —  
Common units issued in connection with annual bonus423 484 — — 907 
Units withheld for employee tax obligations(139)(158)— — (297)
Balance at June 30, 2020$163,075 $(58,679)$ $(27,548)$76,848 
Balance at December 31, 2020$154,238 $(69,561)$ $(25,982)$58,695 
Net income3,289 (2,186)2,074 — 3,177 
Other comprehensive income— — — 4,457 4,457 
Unit-based compensation(1,373)(1,894)— — (3,267)
Distributions paid in cash(13,459)(19,364)(2,074)— (34,897)
Increase in affiliated units as a result of acquisition by Hartree Partners, LP(30,921)30,921 — —  
Common units issued in connection with annual bonus
1,461 2,014 — — 3,475 
Units withheld for employee tax obligations(609)(840)— — (1,449)
Balance at June 30, 2021$112,626 $(60,910)$ $(21,525)$30,191 

The accompanying notes are an integral part of these financial statements.
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Sprague Resources LP
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 Six Months Ended June 30,
 20212020
Cash flows from operating activities
Net income$3,177 $21,612 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (includes amortization of deferred debt issuance costs)19,297 20,040 
(Gain) loss on sale of assets(9,840)27 
Changes in fair value of contingent consideration 244 
Provision for doubtful accounts98 539 
Non-cash unit-based compensation208 1,261 
Deferred income taxes(246)(603)
Changes in assets and liabilities:
Accounts receivable34,716 173,829 
Inventories52,888 96,785 
Other assets54,266 7,576 
Fair value of commodity derivative instruments29,933 (29,654)
Due to General Partner and affiliates(6,295)(1,125)
Accounts payable, accrued liabilities and other(19,050)(113,250)
Net cash provided by operating activities159,152 177,281 
Cash flows from investing activities
Purchases of property, plant and equipment(5,799)(5,386)
Proceeds from sale of assets11,125 241 
Net cash provided by (used in) investing activities5,326 (5,145)
Cash flows from financing activities
Net payments under credit agreements(117,383)(131,618)
Payments on finance leases, term debt, and other obligations(3,335)(2,804)
Debt issue costs(4,430)(5,669)
Distributions to unitholders(34,897)(32,557)
Units withheld for employee tax obligations(1,450)(297)
Net cash used in financing activities(161,495)(172,945)
Effect of exchange rate changes on cash balances held in foreign currencies(4)(829)
Net change in cash and cash equivalents2,979 (1,638)
Cash and cash equivalents, beginning of period3,771 5,386 
Cash and cash equivalents, end of period$6,750 $3,748 
Supplemental disclosure of cash flow information
Cash paid for interest$14,476 $20,424 
Cash paid for taxes$6,165 $1,434 
Assets acquired under finance lease obligations$1,580 $609 
Cash paid for operating leases$3,068 $3,085 
Distribution paid in units$ $2,053 






The accompanying notes are an integral part of these financial statements.
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Sprague Resources LP
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands unless otherwise stated)
1. Description of Business and Summary of Significant Accounting Policies
Partnership Businesses
Sprague Resources LP (the “Partnership”) is a Delaware limited partnership formed on June 23, 2011 by Sprague Holdings and its General Partner and engages in the purchase, storage, distribution and sale of refined products and natural gas, and provides storage and handling services for a broad range of materials.
On April 20, 2021, the Partnership and Hartree Partners, LP ("Hartree") announced that Sprague Holdings entered into an agreement to sell to Sprague HP Holdings, LLC (a wholly-owned subsidiary of Hartree) the interest of Sprague Holdings in the General Partner, the incentive distribution rights and all of the common units representing limited partner interests that Sprague Holdings owned in the Partnership (the “Transaction”). The Transaction was completed and effective on May 28, 2021.
Unless the context otherwise requires, prior to May 28, 2021, references referring to “Sprague Resources,” and the “Partnership,” refer to Sprague Resources LP and its subsidiaries; references to the "General Partner" refer to Sprague Resources GP LLC; references to “Axel Johnson” or the "Sponsor" refer to Axel Johnson Inc. and its controlled affiliates, collectively, other than Sprague Resources, its subsidiaries and its General Partner; references to “Sprague Holdings” refer to Sprague Resources Holdings LLC, a wholly owned subsidiary of Axel Johnson and the owner of the General Partner.
Unless the context otherwise requires, effective May 28, 2021, references referring to Sprague Resources, and the Partnership, refer to Sprague Resources LP and its subsidiaries; references to the General Partner refer to Sprague Resources GP LLC; references to “Hartree” or the Sponsor refer to Hartree Partners, LP, other than Sprague Resources, its subsidiaries and its General Partner; references to “Sprague Holdings” refer to Sprague HP Holdings LLC, a wholly owned subsidiary of Hartree and the owner of the General Partner.
The Partnership owns, operates and/or controls a network of refined products and materials handling terminals located in the Northeast United States and in Quebec, Canada. The Partnership also utilizes third-party terminals in the Northeast United States through which it sells or distributes refined products pursuant to rack, exchange and throughput agreements. The Partnership has four reportable segments: refined products, natural gas, materials handling and other operations.
The refined products segment purchases a variety of refined products, such as heating oil, diesel fuel, residual fuel oil, kerosene, jet fuel and gasoline - primarily from refining companies, trading organizations and producers - and sells them to wholesale and commercial customers.
The natural gas segment purchases natural gas from natural gas producers and trading companies and sells and distributes natural gas to commercial and industrial customers.
The materials handling segment offloads, stores and prepares for delivery a variety of customer-owned products, including asphalt, clay slurry, salt, gypsum, crude oil, residual fuel oil, coal, petroleum coke, caustic soda, tallow, pulp, and heavy equipment.
The other operations segment primarily includes the marketing and distribution of coal and certain commercial trucking activities.
See Note 2 - Revenue for a description of the Partnership's revenue activities within these business segments.
As of June 30, 2021, the Sponsor, through its ownership of Sprague Holdings, owned 18,173,849 common units (consisting of the 16,058,484 common units purchased as part of the Transaction and 2,115,365 common units beneficially owned by Hartree prior to the consummation of the Transaction) representing 69.3% of the limited partner interest in the Partnership. As of June 30, 2021, Hartree Bulk Storage, LLC and HP Bulk Storage Manager, LLC, (uncontrolled affiliates of Hartree Partners LP) beneficially own an additional 1,375,000 common units which are included in the public units outstanding. Sprague Holdings also owns the General Partner, which in turn owns a non-economic interest in the Partnership. Sprague Holdings currently holds incentive distribution rights (“IDRs”) that entitle it to receive increasing percentages, up to a maximum of 50.0%, of the cash the Partnership distributes from distributable cash flow in excess of $0.7676 per unit per quarter ($0.4744 prior to the consummation of the IDR Reset Election, as described below). The maximum distribution of 50% does not include any distributions that Sprague Holdings may receive on any limited partner units that it owns. See Note 12 - Earnings Per Unit and Note 13 - Partnership Distributions.
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On February 11, 2021, Sprague Holdings provided notice to the Partnership that Sprague Holdings had made an IDR Reset Election (the “IDR Reset Election”), as defined in the First Amended and Restated Agreement of Limited Partnership of the Partnership (as amended, the “Partnership Agreement”). Pursuant to the IDR Reset Election, Sprague Holdings relinquished the right to receive incentive distribution payments based on the minimum quarterly and target cash distribution levels set at the time of the Partnership’s initial public offering and the Partnership issued 3,107,248 common units to Sprague Holdings. Pursuant to the IDR Reset Election, the minimum quarterly distribution amount increased from $0.4125 per common unit per quarter to $0.6675 per common unit per quarter and the levels at which the incentive distribution rights participate in distributions were reset at higher amounts based on then-current common unit distribution rates and a formula in the Partnership Agreement. The IDR Reset Election was effective on March 5, 2021.
On April 29, 2021, the Partnership sold the Oswego terminal to an unaffiliated buyer. In connection with the sale, we recorded a net gain on the sale of $9.0 million for the quarter ended June 30, 2021, which is included within other operating income in the consolidated statements of income. The remaining $0.7 million of other operating income relates to a gain associated with a parcel of land sold at the Bronx terminal.
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of the Partnership and its wholly-owned subsidiaries. Intercompany transactions between the Partnership and its subsidiaries have been eliminated. The accompanying unaudited Condensed Consolidated Financial Statements were prepared in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial information. As permitted under those rules, certain notes or other financial information that are normally required by U.S. generally accepted accounting principles (“GAAP”) to be included in annual financial statements have been condensed or omitted from these interim financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and related notes of the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 5, 2021 (the “2020 Annual Report”).
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and the reported net sales and expenses in the income statement. Actual results could differ from those estimates. Among the estimates made by management are the fair value of derivative assets and liabilities, valuation of contingent consideration, valuation of reporting units within the goodwill impairment assessment, and if necessary long-lived asset impairments and environmental and legal obligations.
The Condensed Consolidated Financial Statements included herein reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the Partnership’s consolidated financial position at June 30, 2021 and December 31, 2020, the consolidated results of operations for the three and six months ended June 30, 2021 and 2020, consolidated statement of changes in unitholders' equity for the three and six months ended June 30, 2021 and 2020, and the consolidated cash flows for the six months ended June 30, 2021 and 2020. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year. Demand for some of the Partnership’s refined petroleum products, specifically heating oil and residual oil for space heating purposes, and to a lesser extent natural gas, are generally higher during the first and fourth quarters of the calendar year which may result in significant fluctuations in the Partnership’s quarterly operating results.
COVID-19

The global outbreak of the novel coronavirus (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets.

Beginning in the quarterly period ended March 31, 2020, a wide array of sectors including but not limited to the energy, transportation, manufacturing and commercial, along with global economic conditions generally, have been significantly disrupted by the pandemic. A growing number of the Partnership’s customers in these industries have experienced substantial reductions in their operations due to travel restrictions as well as the extended shutdown of various businesses in affected regions. Furthermore, government measures have also led to a precipitous decline in fuel prices in response to concerns about demand for fuel.
The pandemic and associated impacts on economic activity had an adverse effect on the Partnership’s operating results for the three and six months ended June 30, 2021, specifically, the Partnership has seen a decline in demand and related sales
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volume as large sectors of the global economy have been adversely impacted by the crisis. In response to these developments, the Partnership took swift action to ensure the safety of employees and other stakeholders, and initiated a number of initiatives relating to cost reduction, liquidity and operating efficiencies.

The Partnership makes estimates and assumptions that affect the reported amounts on these condensed consolidated financial statements and accompanying notes as of the date of the financial statements. The Partnership assessed accounting estimates that require consideration of forecasted financial information, including, but not limited to, the allowance for credit losses, the carrying value of goodwill, intangible assets, and other long-lived assets. This assessment was conducted in the context of information reasonably available to the Partnership, as well as consideration of the future potential impacts of COVID-19 on the Partnership’s business as of June 30, 2021. While market conditions for our products and services have improved when compared to a year ago, the pandemic remains fluid, indicating that the full impact may not have been realized across our business and operations. The economic and operational landscape has been altered, and it is difficult to determine whether such changes are temporary or permanent, with challenges related to staffing, supply chain, and transportation globally. The Partnership continues to monitor the evolving impacts of COVID-19 and variants closely and respond to changing conditions.
Significant Accounting Policies
The Partnership's significant accounting policies are described in Note 1 - Description of Business and Summary of Significant Accounting Policies in the Partnership’s audited consolidated financial statements included in the 2020 Annual Report and are the same as are used in preparing these unaudited interim Condensed Consolidated Financial Statements.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform, if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Partnership has not currently adopted the optional expedients and exceptions provided in this guidance but continues to monitor and evaluate the impact of reference rate reform on relevant transactions.
2. Revenue

Disaggregated Revenue

    In general, the Partnership's business segmentation is aligned according to the nature and economic characteristics of its products and customer relationships which provides meaningful disaggregation of each business segment's results of operations. The Partnership operates its businesses in the Northeast and Mid-Atlantic United States and Eastern Canada.
    
    The refined products segment purchases a variety of refined products, such as heating oil, diesel fuel, residual fuel oil, kerosene, jet fuel and gasoline (primarily from refining companies, trading organizations and producers), and sells them to wholesale and commercial customers. Refined products revenue-producing activities are direct sales to customers, including throughput transactions. Revenue is recognized when the product is delivered. Revenue is not recognized on exchange agreements, which are entered into primarily to acquire refined products by taking delivery of products closer to the Partnership’s end markets. Rather, net differentials or fees for exchange agreements are recorded within cost of products sold (exclusive of depreciation and amortization).

    The natural gas segment purchases natural gas from natural gas producers and trading companies and sells and distributes natural gas to commercial and industrial customers. Natural gas revenue-producing activities are sales to customers at various points on natural gas pipelines or at local distribution companies (i.e., utilities). Natural gas sales not billed by month-end are accrued based upon gas volumes delivered.
    
    The materials handling segment offloads, stores and prepares for delivery a variety of customer-owned products. A majority of the materials handling segment revenue is generated under leasing arrangements with revenue recorded over the lease term generally on a straight-line basis. Contingent rentals are recorded as revenue only when billable under the arrangement. For materials handling contracts that are not leases, the Partnership recognizes revenue either at a point in time
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after services are performed or over a period of time if the services are performed in a continuous fashion over the period of the contract as these methods represent a faithful depiction of the transfer of goods and services.
    The other operations segment primarily includes the marketing and distribution of coal and certain commercial trucking activities. Revenue from other operations is recognized when the product is delivered or the services are rendered.

Further disaggregation of net sales by business segment and geographic destination is as follows:
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Net sales:
Refined products
Distillates$410,551 $219,599 $1,163,478 $915,427 
Gasoline124,550 43,688 219,596 119,965 
Heavy fuel oil and asphalt54,041 29,602 122,268 99,439 
Total refined products$589,142 $292,889 $1,505,342 $1,134,831 
Natural gas51,360 47,988 153,935 143,766 
Materials handling12,725 12,974 24,771 28,531 
Other operations4,445 4,363 9,757 10,965 
Net sales$657,672 $358,214 $1,693,805 $1,318,093 
Net sales by country:
    United States$584,726 $324,058 $1,554,617 $1,230,867 
    Canada72,946 34,156 139,188 87,226 
Net sales$657,672 $358,214 $1,693,805 $1,318,093 

Contract Balances

    Contract liabilities primarily relate to advances or deposits received from the Partnership's customers before revenue is recognized. These amounts are included in accrued liabilities and amounted to $7.1 million and $9.4 million as of June 30, 2021 and December 31, 2020, respectively. A substantial portion of the contract liabilities as of December 31, 2020 remains outstanding as of June 30, 2021 as they are primarily deposits. The Partnership does not have any material contract assets as of June 30, 2021 or December 31, 2020.

3. Leases

    From a lessor perspective, the Partnership has entered into various throughput and materials handling arrangements with customers. These arrangements are accounted for as operating leases as determined by the use terms and rights outlined in the underlying agreements. The throughput contracts are agreements with refined products wholesalers that use the Partnership’s terminal facilities for a fee. The materials handling contracts are arrangements involving rentals of dedicated tanks, pads, land and small office locations for the purposes of storage, parking and other related uses. Income related to the operating leases with the Partnership as the lessor, as described above, totaled $9.8 million and $10.8 million for the three months ended June 30, 2021 and 2020, respectively, and $20.3 million and $20.3 million for the six months ended June 30, 2021 and 2020, respectively.





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4. Accumulated Other Comprehensive Loss, Net of Tax
Amounts included in accumulated other comprehensive loss, net of tax, consisted of the following:
June 30,
2021
December 31, 2020
Fair value of interest rate swaps, net of tax$(10,066)$(14,446)
Cumulative foreign currency translation adjustment(11,459)(11,536)
Accumulated other comprehensive loss, net of tax$(21,525)$(25,982)

5. Inventories
June 30,
2021
December 31,
2020
Petroleum and related products$199,074 $248,977 
Coal952 3,240 
Natural gas2,620 3,316 
Inventories$202,646 $255,533 


6. Credit Agreement
June 30,
2021
December 31, 2020
Working capital facilities$246,598 $358,685 
Acquisition facility377,400 382,400 
Total credit agreement623,998 741,085 
Less: current portion of working capital facilities(246,598)(358,685)
Long-term portion$377,400 $382,400 
On May 11, 2021, Sprague Operating Resources LLC (the “U.S. Borrower”) and Kildair Service ULC (the “Canadian Borrower” and, together with the U.S. Borrower, the “Borrowers”), wholly owned subsidiaries of the Partnership, entered into a first amendment (the “First Amendment”) to the second amended and restated credit agreement dated as of May 19, 2020 (the "Original Credit Agreement"; the Original Credit Agreement as amended by the First Amendment, the “Credit Agreement"). Upon the effective date, the First Amendment increased the acquisition facility from $430 million to $450 million and was accounted for as a modification of a syndicated loan arrangement with partial extinguishment to the extent there was a decrease in the borrowing capacity on a creditor by creditor basis. Overall, the Credit Agreement matures on May 19, 2023. The Partnership and certain of its subsidiaries (the “Subsidiary Guarantors”) are guarantors of the obligations under the Credit Agreement. Obligations under the Credit Agreement are secured by substantially all of the assets of the Partnership, the Borrowers and the Subsidiary Guarantors (collectively, the “Loan Parties”).
As of June 30, 2021, the revolving credit facilities under the Credit Agreement contained, among other items, the following:
 
A committed U.S. dollar revolving working capital facility of up to $465.0 million, subject to borrowing base limits, to be used for working capital loans and letters of credit;
An uncommitted U.S. dollar revolving working capital facility of up to $200.0 million, subject to borrowing base limits and the sole discretion of the lenders, to be used for working capital loans and letters of credit;
A multicurrency revolving working capital facility of up to $85.0 million, subject to borrowing base limits, to be used for working capital loans and letters of credit;
A revolving acquisition facility of up to $450.0 million, subject to borrowing base limits, to be used for loans and letters of credit to fund capital expenditures and acquisitions and other general corporate purposes; and
Subject to certain conditions, including the receipt of additional commitments from lenders, the ability to increase the U.S. dollar revolving working capital facility to up to $1.2 billion and the multicurrency revolving working capital facility to up to $320.0 million. Additionally, subject to certain conditions, the revolving acquisition facility may be increased to up to $750.0 million.
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Indebtedness under the Credit Agreement bears interest, at the Borrowers’ option, at a rate per annum equal to either (i) the Eurocurrency Rate (which is the LIBOR Rate for loans denominated in U.S. dollars and CDOR for loans denominated in Canadian dollars, in each case adjusted for certain regulatory costs, and in each case with a floor of 0.25%) for interest periods of one, two (solely with respect to Eurocurrency Rate loans denominated in Canadian dollars), three or six (solely with respect to Eurocurrency Rate loans denominated in U.S. dollars) months plus a specified margin or (ii) an alternate rate plus a specified margin.
For loans denominated in U.S. dollars, the alternate rate is the Base Rate which is the highest of (a) the U.S. Prime Rate as in effect from time to time, (b) the greater of the Federal Funds Effective Rate and the Overnight Bank Funding Rate as in effect from time to time plus 0.50% and (c) the one-month Eurocurrency Rate for U.S. dollars as in effect from time to time plus 1.00%.
For loans denominated in Canadian dollars, the alternate rate is the Prime Rate which is the higher of (a) the Canadian Prime Rate as in effect from time to time and (b) the one-month Eurocurrency Rate for U.S. dollars as in effect from time to time plus 1.00%.
The specified margins for the working capital revolving facilities vary based on the utilization of the working capital facilities as a whole, measured on a quarterly basis. The specified margin for (x) the committed U.S. dollar revolving working capital facility range from 1.00% to 1.50% for loans bearing interest at the Base Rate and from 2.00% to 2.50% for loans bearing interest at the Eurocurrency Rate, (y) the uncommitted U.S. dollar revolving working capital facility range from 0.75% to 1.25% for loans bearing interest at the Base Rate and 1.75% to 2.25% for loans bearing interest at the Eurocurrency Rate and (z) the multicurrency revolving working capital facility range from 1.00% to 1.50% for loans bearing interest at the Base Rate and 2.00% to 2.50% for loans bearing interest at the Eurocurrency Rate.
The specified margin for the revolving acquisition facility varies based on the consolidated total leverage of the Loan Parties. The specified margin for the revolving acquisition facility range from 1.25% to 2.25% for loans bearing interest at the Base Rate and from 2.25% to 3.25% for loans bearing interest at the Eurocurrency Rate.
In addition, the Borrowers will incur a commitment fee on the unused portion of (x) the committed U.S. dollar revolving working capital facility and multicurrency revolving working capital facility ranging from 0.375% to 0.500% per annum and (y) the revolving acquisition facility at a rate ranging from 0.35% to 0.50% per annum. Overdue amounts bear interest at the applicable rates described above plus an additional margin of 2%.
The working capital facilities are subject to borrowing base reporting and as of June 30, 2021 and December 31, 2020, had a borrowing base of $384.4 million and $540.0 million, respectively. As of June 30, 2021 and December 31, 2020, outstanding letters of credit related to the working capital facilities were $16.0 million and $77.3 million, respectively. As of June 30, 2021 and December 31, 2020, outstanding letters of credit related to the acquisition facility were $13.9 million and $15.4 million, respectively. As of June 30, 2021, excess availability under the working capital facilities was $121.8 million and excess availability under the acquisition facility was $58.7 million.
The weighted average interest rate was 3.0% at both June 30, 2021 and December 31, 2020. No amounts are due under the Credit Agreement until the maturity date. However, the current portion at June 30, 2021 and December 31, 2020 represents the amounts of the working capital facility.
The Credit Agreement contains various covenants and restrictive provisions that, among other things, prohibit the Partnership from making distributions to unitholders if any event of default occurs or would result from the distribution or if the Loan Parties would not be in pro forma compliance with the financial covenants after giving effect to the distribution. In addition, the Credit Agreement contains various covenants that are usual and customary for a financing of this type, size and purpose, including, but not limited to, covenants that require the Loan Parties to maintain: a minimum consolidated EBITDA-to fixed-charge ratio, a minimum consolidated net working capital amount and a maximum consolidated total leverage-to-EBITDA ratio. The Credit Agreement also limits the Loan Parties ability to incur debt, grant liens, make certain investments or acquisitions, enter into affiliate transactions and dispose of assets. The Partnership was in compliance with the covenants under the Credit Agreement at June 30, 2021.
The Credit Agreement also contains events of default that are usual and customary for a financing of this type, size and purpose including, among others, non-payment of principal, interest or fees, violation of certain covenants, material inaccuracy of representations and warranties, bankruptcy and insolvency events, cross-payment default and cross-acceleration, material judgments and events constituting a change of control. If an event of default exists under the Credit Agreement, the lenders will
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be able to terminate the lending commitments, accelerate the maturity of the Credit Agreement and exercise other rights and remedies with respect to the collateral.     
7. Related Party Transactions
The General Partner charges the Partnership for the reimbursements of employee costs and related employee benefits and other overhead costs supporting the Partnership’s operations which amounted to $20.2 million and $21.0 million for the three months ended June 30, 2021 and 2020, and $46.5 million and $44.5 million for the six months ended June 30, 2021 and 2020, respectively. Through the General Partner, the Partnership also participates in the Sponsor’s pension and other post-retirement benefits. At June 30, 2021 and December 31, 2020, total amounts due to the General Partner with respect to these benefits and overhead costs were $7.8 million and $13.7 million, respectively.
During the three and six months ended June 30, 2021, the Partnership recorded tank use and storage fee revenue of $0.2 million and $0.7 million, respectively, from lease agreements entered into with Hartree, a related party. In addition, the Partnership made net inventory purchases from Hartree totaling $29.8 million and $97.8 million for the three and six months ended June 30, 2021, respectively. As of June 30, 2021, the Partnership had a receivable of $0.5 million from Hartree related to certain fees paid on their behalf.
8. Segment Reporting
The Partnership has four reportable segments that comprise the structure used by the chief operating decision makers (CEO and CFO) to make key operating decisions and assess performance. When establishing a reporting segment, the Partnership aggregates individual operating units that are in the same line of business and have similar economic characteristics. These reportable segments are refined products, natural gas, materials handling and other operations.
The Partnership's refined products segment purchases a variety of refined products, such as heating oil, diesel fuel, residual fuel oil, kerosene, jet fuel and gasoline (primarily from refining companies, trading organizations and producers), and sells them to its customers. The Partnership has wholesale customers who resell the refined products they purchase from the Partnership and commercial customers who consume the refined products they purchase. The Partnership’s wholesale customers consist of home heating oil retailers and diesel fuel and gasoline resellers. The Partnership’s commercial customers include federal and state agencies, municipalities, regional transit authorities, drill sites, large industrial companies, real estate management companies, hospitals, educational institutions and asphalt paving companies. The refined products reportable segment consists of two operating segments.
The Partnership's natural gas segment purchases natural gas from natural gas producers and trading companies and sells and manages distribution of natural gas to commercial and industrial customer locations across 13 states in the Northeast and Mid-Atlantic United States and Canada. The natural gas reportable segment consists of one operating segment.
The Partnership's materials handling segment offloads, stores, and prepares for delivery a variety of customer-owned products, including asphalt, clay slurry, salt, gypsum, crude oil, residual fuel oil, coal, petroleum coke, caustic soda, tallow, pulp and heavy equipment. These services are generally conducted under multi-year agreements as either fee-based activities or as leasing arrangements when the right to use an identified asset (such as storage tanks or storage locations) has been conveyed in the agreement. The materials handling reportable segment consists of two operating segments.
The Partnership's other operations segment primarily consists of the purchase, sale and distribution of coal, and commercial trucking activities unrelated to its refined products segment. Other operations are not reported separately as they represent less than 10% of consolidated net sales and adjusted gross margin. The other operations reporting segment consists of two operating segments.
The Partnership evaluates segment performance based on adjusted gross margin, a non-GAAP measure, which is net sales less cost of products sold (exclusive of depreciation and amortization) increased by unrealized hedging losses and decreased by unrealized hedging gains, in each case with respect to refined products and natural gas inventory, and natural gas transportation contracts.
Based on the way the business is managed, it is not reasonably possible for the Partnership to allocate the components of operating costs and expenses among the operating segments. There were no significant intersegment sales for any of the years presented below.
The Partnership had no single customer that accounted for more than 10% of total net sales for the three and six months ended June 30, 2021 and 2020, respectively. The Partnership’s foreign sales, primarily sales of refined products and natural gas
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to its customers in Canada, were $73.0 million and $34.2 million for the three months ended June 30, 2021 and 2020, respectively, and $139.2 million and $87.2 million for the six months ended June 30, 2021 and 2020, respectively.

Summarized financial information for the Partnership's reportable segments is presented in the table below:
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Net sales:
Refined products$589,142 $292,889 $1,505,342 $1,134,831 
Natural gas51,360 47,988 153,935 143,766 
Materials handling12,725 12,974 24,771 28,531 
Other operations4,445 4,363 9,757 10,965 
Net sales$657,672 $358,214 $1,693,805 $1,318,093 
Adjusted gross margin (1):
Refined products$27,165 $52,861 $78,198 $88,650 
Natural gas(2,725)(2,245)38,364 27,542 
Materials handling12,694 12,895 24,770 28,476 
Other operations1,696 1,673 3,709 3,626 
Adjusted gross margin38,830 65,184 145,041 148,294 
Reconciliation to operating income (2):
Add/(deduct):
Change in unrealized (loss) gain on inventory (3)
(5,369)(32,326)20,888 (18,775)
Change in unrealized value on natural gas transportation contracts (4)
(35,592)123 (56,709)13,322 
Operating costs and expenses not allocated to operating segments:
Operating expenses(19,148)(18,471)(38,379)(39,283)
Selling, general and administrative(16,719)(18,923)(41,958)(38,956)
Depreciation and amortization(8,258)(8,518)(16,741)(17,115)
Other operating income9,725  9,725  
Operating (loss) income(36,531)(12,931)21,867 47,487 
Other income 64 2 64 
Interest income77 72 143 248 
Interest expense(8,587)(10,788)(17,402)(22,074)
Income tax provision(562)(1,542)(1,433)(4,113)
Net (loss) income$(45,603)$(25,125)$3,177 $21,612 

(1)The Partnership trades, purchases, stores and sells energy commodities that experience market value fluctuations. To manage the Partnership’s underlying performance, including its physical and derivative positions, management utilizes adjusted gross margin, which is a non-GAAP financial measure. Adjusted gross margin is also used by external users of the Partnership’s consolidated financial statements to assess the Partnership’s economic results of operations and its commodity market value reporting to lenders. In determining adjusted gross margin, the Partnership adjusts its segment results for the impact of the changes in unrealized gains and losses with regard to refined products and natural gas inventory, and natural gas transportation contracts, which are not marked to market for the purpose of recording unrealized gains or losses in net income. These adjustments align the unrealized hedging gains and losses to the period in which the revenue from the sale of inventory, prepaid fixed forwards and the utilization of transportation contracts relating to those hedges is realized in net income. Adjusted gross margin has no impact on reported volumes or net sales.
(2)Reconciliation of adjusted gross margin to operating income, the most directly comparable GAAP measure.
(3)Inventory is valued at the lower of cost or net realizable value. The adjustment related to change in the unrealized gain on inventory which is not included in net income, represents the estimated difference between inventory valued at the lower of cost or net realizable value as compared to market values. The fair value of the derivatives the Partnership uses to economically hedge its inventory declines or appreciates in value as the value of the underlying inventory appreciates or declines, which creates unrealized hedging losses (gains) with respect to the derivatives that are included in net income.
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(4)Represents the Partnership’s estimate of the change in fair value of the natural gas transportation contracts which are not recorded in net income until the transportation is utilized in the future (i.e., when natural gas is delivered to the customer), as these contracts are executory contracts that do not qualify as derivatives. As the fair value of the natural gas transportation contracts decline or appreciate, the offsetting physical or financial derivative will also appreciate or decline creating unmatched unrealized hedging (gains) losses in net income.

Segment Assets
Due to the commingled nature and uses of the Partnership’s fixed assets, the Partnership does not track its fixed assets between its refined products and materials handling operating segments or its other operations. There are no significant fixed assets attributable to the natural gas reportable segment.
As of June 30, 2021, goodwill recorded for the refined products, natural gas, materials handling and other operations segments amounted to $71.4 million, $35.5 million, $6.9 million and $1.2 million, respectively.

9. Financial Instruments and Off-Balance Sheet Risk
As of June 30, 2021 and December 31, 2020, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximated fair value because of the short maturity of these instruments. As of June 30, 2021 and December 31, 2020, the carrying value of the Partnership’s margin deposits with brokers approximates fair value and consists of initial margin with futures transaction brokers, along with variation margin, which is paid or received on a daily basis, and is included in other current assets or other current liabilities. As of June 30, 2021 and December 31, 2020, the carrying value of the Partnership’s debt approximated fair value due to the variable interest nature of these instruments.
The following table presents financial assets and financial liabilities of the Partnership measured at fair value on a recurring basis:
 As of June 30, 2021
Fair Value
Measurement
Quoted
Prices in
Active
Markets
Level 1
Significant
Other
Observable
Inputs
Level 2
Significant
Unobservable
Inputs
Level 3
Derivative assets:
Commodity fixed forwards$24,024 $ $24,024 $ 
Futures, swaps and options113,175 113,175   
Commodity derivatives137,199 113,175 24,024  
Total derivative assets$137,199 $113,175 $24,024 $ 
Derivative liabilities:
Commodity fixed forwards86,925  86,925  
Futures, swaps and options74,015 73,923 92  
Commodity derivatives160,940 73,923 87,017  
Interest rate swaps10,146  10,146  
Total derivative liabilities$171,086 $73,923 $97,163 $ 
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 As of December 31, 2020
 Fair Value
Measurement
Quoted
Prices in
Active
Markets
Level 1
Significant
Other
Observable
Inputs
Level 2
Significant
Unobservable
Inputs
Level 3
Derivative assets:
Commodity fixed forwards$64,514 $ $64,514 $ 
Futures, swaps and options101,464 101,464