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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number: 001-36137
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 26,234,547 common units outstanding as of May 5, 2022.


Table of Contents

Table of Contents
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



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)
March 31,
2022
December 31,
2021
 (Unaudited)
Assets
Current assets:
Cash and cash equivalents$4,567 $669 
Accounts receivable, net361,552 280,407 
Inventories303,593 439,820 
Fair value of derivative assets248,369 141,018 
Other current assets106,574 22,066 
Total current assets1,024,655 883,980 
Fair value of derivative assets, long-term42,392 33,111 
Property, plant and equipment, net320,489 323,630 
Intangibles, net32,454 34,007 
Other assets, net25,098 28,490 
Goodwill115,036 115,037 
Total assets$1,560,124 $1,418,255 
Liabilities and unitholders’ equity
Current liabilities:
Accounts payable$154,994 $193,843 
Accrued liabilities127,119 76,667 
Fair value of derivative liabilities399,614 195,508 
Due to General Partner9,309 11,077 
Current portion of working capital facilities424,503 497,578 
Current portion of other obligations8,713 8,594 
Total current liabilities1,124,252 983,267 
Commitments and contingencies
Acquisition facility377,400 377,400 
Fair value of derivative liabilities, long-term47,726 64,415 
Other obligations, less current portion30,118 31,664 
Operating lease liabilities, less current portion 8,552 11,067 
Due to General Partner2,428 2,291 
Deferred income taxes15,414 13,733 
Total liabilities1,605,890 1,483,837 
Unitholders’ equity:
Common unitholders - public (6,685,698 and 6,685,698 units issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)
63,763 62,090 
Common unitholders - affiliated (19,548,849 and 19,548,849 units issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)
(106,282)(111,175)
Accumulated other comprehensive loss, net of tax(3,247)(16,497)
Total unitholders’ equity(45,766)(65,582)
Total liabilities and unitholders’ equity$1,560,124 $1,418,255 


The accompanying notes are an integral part of these financial statements.
1

Table of Contents

Sprague Resources LP
Unaudited Condensed Consolidated Statements of Operations
(in thousands except unit and per unit amounts)
 
 Three Months Ended March 31,
 20222021
Net sales$1,813,315 $1,036,134 
Cost of products sold (exclusive of depreciation and amortization)1,729,078 924,782 
Operating expenses23,235 19,232 
Selling, general and administrative28,720 25,239 
Depreciation and amortization8,126 8,482 
Total operating costs and expenses1,789,159 977,735 
Operating income24,156 58,399 
Other income (1)2 
Interest income28 67 
Interest expense(10,572)(8,815)
Income before income taxes13,611 49,653 
Income tax benefit (provision)4,335 (871)
Net income17,946 48,782 
Incentive distributions declared  
Limited partners' interest in net income$17,946 $48,782 
Net income per limited partner unit:
Common - basic$0.68 $2.04 
Common - diluted$0.68 $2.04 
Units used to compute net income per limited partner unit:
Common - basic26,234,547 23,893,846 
Common - diluted26,234,547 23,893,846 
Distribution declared per unit$0.4338 $0.6675 










The accompanying notes are an integral part of these financial statements.
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Sprague Resources LP
Unaudited Condensed Consolidated Statements of Comprehensive Income
(in thousands)
 
 Three Months Ended March 31,
 20222021
Net income$17,946 $48,782 
Other comprehensive income, net of tax:
Unrealized gain on interest rate swaps
Net income arising in the period11,822 1,806 
Reclassification adjustment related to loss (gain) realized in income1,498 1,356 
Net change in unrealized gain on interest rate swaps13,320 3,162 
Tax effect(104)(25)
13,216 3,137 
Foreign currency translation adjustment34 37 
Other comprehensive income13,250 3,174 
Comprehensive income$31,196 $51,956 


















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 March 31, 2021 and 2022
Balance at December 31, 2020$154,238 $(69,561)$ $(25,982)$58,695 
Net income19,636 27,072 2,074 — 48,782 
Other comprehensive income— — — 3,174 3,174 
Unit-based compensation(1,374)(1,895)— — (3,269)
Distributions paid in cash(6,672)(8,645)(2,074)— (17,391)
Common units issued in connection with annual bonus1,461 2,014 — — 3,475 
Units withheld for employee tax obligations(609)(840)— — (1,449)
Balance at March 31, 2021$166,680 $(51,855)$ $(22,808)$92,017 
Balance at December 31, 2021$62,090 $(111,175)$ $(16,497)$(65,582)
Net income4,573 13,373  — 17,946 
Other comprehensive income— — — 13,250 13,250 
Distributions paid in cash(2,900)(8,480) — (11,380)
Balance at March 31, 2022$63,763 $(106,282)$ $(3,247)$(45,766)

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)
 Three Months Ended March 31,
 20222021
Cash flows from operating activities
Net income$17,946 $48,782 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (includes amortization of deferred debt issuance costs)9,143 9,523 
(Gain) loss on sale of assets(50)(92)
Provision for doubtful accounts(8)65 
Non-cash unit-based compensation 206 
Deferred income taxes1,579 (113)
Changes in assets and liabilities:
Accounts receivable(81,137)(28,271)
Inventories136,227 67,184 
Other assets(82,063)20,607 
Fair value of commodity derivative instruments84,106 (9,629)
Due to General Partner and affiliates(1,632)(2,794)
Accounts payable, accrued liabilities and other8,812 (17,000)
Net cash provided by operating activities92,923 88,468 
Cash flows from investing activities
Purchases of property, plant and equipment(2,789)(2,131)
Proceeds from sale of assets176 208 
Net cash used in investing activities(2,613)(1,923)
Cash flows from financing activities
Net payments under credit agreements(73,200)(62,663)
Payments on finance leases and other obligations(1,763)(1,733)
Debt issuance costs(70)17 
Distributions to unitholders(11,380)(17,391)
Units withheld for employee tax obligations (1,450)
Net cash used in financing activities(86,413)(83,220)
Effect of exchange rate changes on cash balances held in foreign currencies1 2 
Net change in cash and cash equivalents3,898 3,327 
Cash and cash equivalents, beginning of period669 3,771 
Cash and cash equivalents, end of period$4,567 $7,098 
Supplemental disclosure of cash flow information
Cash paid for interest$9,458 $7,722 
Cash paid for taxes$2,099 $4,104 
Assets acquired under finance lease obligations$691 $1,117 
Cash paid for operating leases$2,813 $2,537 






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 (defined below) 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 and the aggregate purchase price was $290.0 million, consisting of approximately $265.0 million attributable to the purchase of 16,058,484 common units and approximately $25.0 million attributable to the general partner interest and incentive distribution rights. The Partnership elected not to apply push-down accounting in its consolidated financial statements upon the change in control on May 28, 2021.
On January 11, 2022, the Partnership received an unsolicited non-binding proposal from Hartree pursuant to which Hartree would acquire all of the outstanding common units of the Partnership that Hartree and its affiliates do not already own in exchange for $16.50 in cash for each such common unit. The board of directors of the General Partner has delegated authority to evaluate and negotiate the proposal to its conflicts committee. The conflicts committee's evaluation process is currently ongoing.
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, and its controlled affiliates, collectively, 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.
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As of March 31, 2022, the Sponsor, through its ownership of Sprague Holdings, owned 19,548,849 common units representing 74.5% of the limited partner interest in the Partnership. 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 of the cash the Partnership distributes from distributable cash flow in excess of $0.7676 per unit per quarter, up to maximum of 50.0%. The maximum distribution of 50% does not include any distributions that Sprague Holdings may receive on any limited partner units that it owns.
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, 2021 as filed with the SEC on March 4, 2022 (the “2021 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 March 31, 2022 and December 31, 2021, the consolidated results of operations for the three months ended March 31, 2022 and 2021, consolidated statement of changes in unitholders' equity for the three months ended March 31, 2022 and 2021, and the consolidated cash flows for the three months ended March 31, 2022 and 2021. 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

In 2022, a wide array of sectors continue to be affected by COVID-19, its variants and the related supply chain disruptions brought on by the pandemic, including but not limited to energy, transportation, manufacturing and commercial and retail businesses and global economic conditions continued to be volatile. With the easing of restrictions, health advancements and other ongoing measures to alleviate the pandemic in 2021 and the first quarter of 2022, demand for refined products appears to have normalized. In order to continue to mitigate the effects of the pandemic, we continue to focus on the safety of employees and other stakeholders as well as 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 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, and its variants, on the Partnership’s business as of March 31, 2022. While market conditions for our products and services appear to have stabilized as compared to the onset of the pandemic, the pandemic remains fluid. 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. Accordingly, if the impact is more severe or longer in duration than the Partnership has assumed, such impact could potentially result in impairments and increases in credit allowances. As we strategize with regard to fiscal year 2022 and beyond, the Partnership continues to monitor the evolving impacts of COVID-19 and its variants closely and adapting our operations to changing demand patterns and the potential impact of the COVID-19 pandemic on future cash flows and access to adequate liquidity.

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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 2021 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 adopted this guidance on a prospective basis with regard to the Partnership's interest rate swaps. The guidance did not have a material impact on our financial position, results of operations or disclosures at transition, but we will continue to evaluate its impact on contracts modified on or before December 31, 2022.
In May 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842), Lessors - Certain Leases with Variable Lease Payments. This ASU addresses an issue related to a lessor's accounting for certain leases with variable lease payments. The amendments in this Update affect lessors with lease contracts that (1) have variable lease payments that do not depend on a reference index or a rate and (2) would have resulted in the recognition of a selling loss at lease commencement if classified as a sales-type lease or a direct financing lease. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. The adoption of this guidance did not have a material impact to the Partnership's Condensed Consolidated Financial Statements.
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 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:
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Three Months Ended March 31,
 20222021
Net sales:
Refined products
Distillates$1,372,085 $752,928 
Gasoline187,571 95,046 
Heavy fuel oil and asphalt107,174 68,227 
Total refined products$1,666,830 $916,201 
Natural gas125,844 102,575 
Materials handling13,093 12,046 
Other operations7,548 5,312 
Net sales$1,813,315 $1,036,134 
Net sales by country:
    United States$1,712,379 $969,892 
    Canada100,936 66,242 
Net sales$1,813,315 $1,036,134 

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 $8.6 million and $9.8 million as of March 31, 2022 and December 31, 2021, respectively. A substantial portion of the contract liabilities as of December 31, 2021 remains outstanding as of March 31, 2022 as they are primarily deposits. The Partnership does not have any material contract assets as of March 31, 2022 or December 31, 2021.

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 $9.4 million and $10.5 million for the three months ended March 31, 2022 and 2021, respectively.


4. Accumulated Other Comprehensive Loss, Net of Tax
Amounts included in accumulated other comprehensive loss, net of tax, consisted of the following:
March 31,
2022
December 31, 2021
Fair value of interest rate swaps, net of tax$8,260 $(4,954)
Cumulative foreign currency translation adjustment(11,507)(11,543)
Accumulated other comprehensive loss, net of tax$(3,247)$(16,497)

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5. Inventories
March 31,
2022
December 31,
2021
Petroleum and related products$298,079 $426,323 
Coal3,949 6,870 
Natural gas1,565 6,627 
Inventories$303,593 $439,820 

6. Credit Agreement
March 31,
2022
December 31, 2021
Working capital facilities$424,503 $497,578 
Acquisition facility377,400 377,400 
Total credit agreement801,903 874,978 
Less: current portion of working capital facilities(424,503)(497,578)
Long-term portion$377,400 $377,400 
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 dates 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. 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 further described in Note 14, subsequent to the three months ended March 31, 2022, the Partnership amended the Credit Agreement to modify certain terms of the credit facility outlined below.
At March 31, 2022, 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 covenants, 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.
At March 31, 2022, indebtedness under the Credit Agreement bore 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.
At March 31, 2022, loans denominated in U.S. dollars, the alternate rate was 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
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from time to time plus 1.00%. For loans denominated in Canadian dollars, the alternate rate was 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%.
At March 31, 2022, the specified margins for the working capital revolving facilities varied 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 ranged 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 ranged from 0.75% to 1.25% for loans bearing interest at the Base Rate and 1.75% to 2.25% for loans that bore interest at the Eurocurrency Rate and (z) the multicurrency revolving working capital facility ranged from 1.00% to 1.50% for loans that bore interest at the Base Rate and 2.00% to 2.50% for loans that bore interest at the Eurocurrency Rate.
At March 31, 2022, 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 that ranged from 0.375% to 0.500% per annum and (y) the revolving acquisition facility at a rate that ranged from 0.375% to 0.500% per annum. Overdue amounts bore 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 March 31, 2022 and December 31, 2021, had a borrowing base of $750.0 million and $750.0 million, respectively. As of March 31, 2022 and December 31, 2021, outstanding letters of credit related to the working capital facilities were $74.6 million and $80.6 million, respectively. As of March 31, 2022 and December 31, 2021, outstanding letters of credit related to the acquisition facility were $24.3 million and $18.8 million, respectively. As of March 31, 2022, excess availability under the working capital facilities was $250.9 million and excess availability under the acquisition facility was $48.3 million.
The weighted average interest rate was 3.2% at both March 31, 2022 and December 31, 2021. No amounts are due under the Credit Agreement until the maturity date. However, the current portion at March 31, 2022 and December 31, 2021 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 March 31, 2022.
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 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 $31.0 million and $26.3 million for the three months ended March 31, 2022 and 2021, respectively. Through the General Partner, the Partnership participates in pension plans sponsored by Axel Johnson and an other post-retirement benefits plan, which was previously sponsored by Axel Johnson, but is now sponsored by the General Partner beginning in June 2021. At March 31, 2022 and December 31, 2021, total amounts due to the General Partner with respect to these benefits and overhead costs were $11.7 million and $13.4 million, respectively.
During the three months ended March 31, 2022, the Partnership made oil and natural gas product purchases from Hartree totaling $9.2 million and generated sales of natural gas products to Hartree of $0.6 million. There were no amounts recorded for
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tank fee and storage revenue for the three months ended March 31, 2022 as the lease agreement expired in 2021 and was not renewed. As of March 31, 2022, the Partnership is party to four credit guarantee arrangements with third party beneficiaries, totaling $70.0 million in credit support, for which Hartree acts as the guarantor.
During the three months ended March 31, 2021, the Partnership recorded tank use and storage fee revenue of $0.5 million from lease agreements entered into with Hartree Partners, LP ("Hartree"), a related party. In connection with these agreements, the Partnership made net inventory purchases from Hartree totaling $68.0 million during the three months ended March 31, 2021.
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 months ended March 31, 2022 and 2021, respectively. The Partnership’s foreign sales, primarily sales of refined products and natural gas to its customers in Canada, were $100.9 million and $66.2 million for the three months ended March 31, 2022 and 2021, respectively.
Summarized financial information for the Partnership's reportable segments is presented in the table below:
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Three Months Ended March 31,
 20222021
Net sales:
Refined products$1,666,830 $916,201 
Natural gas125,844 102,575 
Materials handling13,093 12,046 
Other operations7,548 5,312 
Net sales$1,813,315 $1,036,134 
Adjusted gross margin (1):
Refined products$54,126 $51,033 
Natural gas71,351 41,089 
Materials handling13,130 12,076 
Other operations2,922 2,013 
Adjusted gross margin141,529 106,211 
Reconciliation to operating income (2):
Add/(deduct):
Change in unrealized (loss) gain on inventory (3)
(15,369)26,257 
Change in unrealized value on natural gas transportation contracts (4)
(41,923)(21,116)
Operating costs and expenses not allocated to operating segments:
Operating expenses(23,235)(19,232)
Selling, general and administrative(28,720)(25,239)
Depreciation and amortization(8,126)(8,482)
Operating income24,156 58,399 
Other income(1)2 
Interest income28 67 
Interest expense(10,572)(8,815)
Income tax benefit (provision)4,335 (871)
Net income$17,946 $48,782 

(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.
(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.


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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 March 31, 2022, 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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 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 March 31, 2022
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$19,369 $ $19,369 $ 
Futures, swaps and options262,813 262,813   
Commodity derivatives282,182 262,813 19,369  
Interest rate swaps8,579  8,579  
Total derivative assets$290,761 $262,813 $27,948 $ 
Derivative liabilities:
Commodity fixed forwards227,785  227,785  
Futures, swaps and options219,303 219,237 66  
Commodity derivatives447,088 219,237 227,851  
Interest rate swaps252  252  
Total derivative liabilities$447,340 $219,237 $228,103 $ 
 As of December 31, 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$25,793 $ $25,793 $ 
Futures, swaps and options148,034 148,029 5  
Commodity derivatives173,827 148,029 25,798  
Interest rate swaps302  302  
Total derivative assets$174,129 $148,029 $26,100 $ 
Derivative liabilities:
Commodity fixed forwards176,602  176,602  
Futures, swaps and options78,026 77,948 78  
Commodity derivatives254,628 77,948 176,680  
Interest rate swaps5,295  5,295  
Total derivative liabilities$259,923 $77,948 $181,975 $ 

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Commodity Derivative Instruments
The Partnership utilizes derivative instruments consisting of futures contracts, forward contracts, swaps, options and other derivatives individually or in combination, to mitigate its exposure to fluctuations in prices of refined petroleum products and natural gas. The use of these derivative instruments within the Partnership's risk management policy may, on a limited basis, generate gains or losses from changes in market prices. The Partnership enters into futures and over-the-counter (“OTC”) transactions either on regulated exchanges or in the OTC market. Futures contracts are exchange-traded contractual commitments to either receive or deliver a standard amount or value of a commodity at a specified future date and price, with some futures contracts based on cash settlement rather than a delivery requirement. Futures exchanges typically require margin deposits as security. OTC contracts, which may or may not require margin deposits as security, involve parties that have agreed either to exchange cash payments or deliver or receive the underlying commodity at a specified future date and price. The Partnership posts 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. In addition, the Partnership may either pay or receive margin based upon exposure with counterparties. Payments made by the Partnership are included in other current assets, whereas payments received by the Partnership are included in accrued liabilities. Substantially of all of the Partnership’s commodity derivative contracts outstanding as of March 31, 2022 will settle prior to September 30, 2023.
The Partnership enters into some master netting arrangements to mitigate credit risk with significant counterparties. Master netting arrangements are standardized contracts that govern all specified transactions with the same counterparty and allow the Partnership to terminate all contracts upon occurrence of certain events, such as a counterparty’s default. The Partnership has elected not to offset the fair value of its derivatives, even where these arrangements provide the right to do so.
The Partnership’s derivative instruments are recorded at fair value, with changes in fair value recognized in net income each period. The Partnership’s fair value measurements are determined using the market approach and includes non-performance risk and time value of money considerations. Counterparty credit is considered for receivable balances, and the Partnership’s credit is considered for payable balances. In accordance with fair value standards under GAAP, there was an $8.8 million gain recorded during the three months ended March 31, 2022 associated with the quarterly fair value measurement of the credit risk associated with our refined product and natural gas derivative assets and liabilities.
The Partnership determines fair value based on a hierarchy for the inputs used to measure the fair value of financial assets and liabilities based on the source of the input, which generally range from quoted prices for identical instruments in a principal trading market (Level 1) to estimates determined using significant unobservable inputs (Level 3). Multiple inputs may be used to measure fair value; however, the level of fair value is based on the lowest significant input level within this fair value hierarchy.
Details on the methods and assumptions used to determine the fair values are as follows:
Fair value measurements based on Level 1 inputs: Measurements that are most observable and are based on quoted prices of identical instruments obtained from the principal markets in which they are traded. Closing prices are both readily available and representative of fair value. Market transactions occur with sufficient frequency and volume to assure liquidity.
Fair value measurements based on Level 2 inputs: Measurements derived indirectly from observable inputs or from quoted prices from markets that are less liquid are considered Level 2. Measurements based on Level 2 inputs include OTC derivative instruments that are priced on an exchange traded curve, but have contractual terms that are not identical to exchange traded contracts. The Partnership utilizes fair value measurements based on Level 2 inputs for its fixed forward contracts, over-the-counter commodity price swaps, interest rate swaps and forward currency contracts.
Fair value measurements based on Level 3 inputs: Measurements that are least observable are estimated from significant unobservable inputs determined from sources with little or no market activity for comparable contracts or for positions with longer durations.
The Partnership does not offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against the fair value of derivative instruments executed with the same counterparty under the same master netting arrangement. The Partnership had no right to reclaim or obligation to return cash collateral as of March 31, 2022 and December 31, 2021.

The Partnership enters into derivative contracts with counterparties, some of which are subject to master netting arrangements, which allow net settlements under certain conditions. The Partnership presents derivatives at gross fair values in
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the Condensed Consolidated Balance Sheets. The maximum amount of loss due to credit risk that the Partnership would incur if its counterparties failed completely to perform according to the terms of the contracts, based on the net fair value of these financial instruments, exclusive of cash collateral, was $122.0 million at March 31, 2022.

Information related to these offsetting arrangements is set forth below:

 As of March 31, 2022
Gross Amount Not Offset in
the Balance Sheet
 Gross Amount of Assets/Liabilities
in the Balance Sheet
Financial
Instruments
Cash
Collateral
Posted
Net Amount
Commodity derivative assets$282,182 $(168,805)$(75,266)$38,111 
Interest rate swap derivative assets8,579   8,579 
Fair value of derivative assets$290,761 $(168,805)$(75,266)$46,690 
Commodity derivative liabilities$(447,088)$168,805 $50,883 $(227,400)
Interest rate swap derivative liabilities(252)  (252)
Fair value of derivative liabilities$(447,340)$168,805 $50,883 $(227,652)

 As of December 31, 2021
Gross Amount Not Offset in
the Balance Sheet
 Gross Amount of Assets/Liabilities
in the Balance Sheet
Financial
Instruments
Cash
Collateral
Posted
Net Amount
Commodity derivative assets$173,827 $(77,927)$(22,623)$73,277 
Interest rate swap derivative assets302   302 
Fair value of derivative assets$174,129 $(77,927)$(22,623)$73,579 
Commodity derivative liabilities$(254,628)$77,927 $1,313 $(175,388)
Interest rate swap derivative liabilities(5,295)  (5,295)
Fair value of derivative liabilities$(259,923)$77,927 $1,313 $(180,683)

The following table presents total realized and unrealized gains (losses) on derivative instruments utilized for commodity risk management purposes included in cost of products sold (exclusive of depreciation and amortization):
 
 Three Months Ended March 31,
 20222021
Refined products contracts$(133,059)$(19,774)
Natural gas contracts168,761 1,309 
Total$35,702 $(18,465)
There were no discretionary trading activities for the three months ended March 31, 2022 and 2021. The following table presents gross volume of commodity derivative instruments outstanding for the periods indicated:
 
 As of March 31, 2022As of December 31, 2021
Refined Products
(Barrels)
Natural Gas
(MMBtus)
Refined Products
(Barrels)
Natural Gas
(MMBtus)
Long contracts6,238 153,455 10,034 167,709 
Short contracts(8,565)(88,610)(14,483)(98,152)

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Interest Rate Derivatives
The Partnership has entered into interest rate swaps to manage its exposure to changes in interest rates on its Credit Agreement. The Partnership’s interest rate swaps hedge the actual and forecasted LIBOR borrowings and have been designated as cash flow hedges. Counterparties to the Partnership’s interest rate swaps are large multinational banks and the Partnership does not believe there is a material risk of counterparty non-performance. The Partnership expects to continue to utilize interest rate swaps to hedge cash flow risk and to manage its exposure to LIBOR or Secured Overnight Financing Rate (SOFR) interest rates for the foreseeable future.
The Partnership's interest rate swap agreements outstanding as of March 31, 2022 were as follows:
BeginningEndingNotional Amount
January 2022December 2022425,000  *
January 2023March 2023475,000  *
April 2023December 2023450,000  *
January 2024December 2024500,000  **
January 2025December 2026450,000  **
January 2027January 2027300,000 
 * During the months of May through October, one interest rate swap agreement decreases by $100 million . This decrease is not reflected in the notional amount in the table above.
** During the months of May through October, two interest rate swap agreements decrease by $100 million each. These decreases are not reflected in the notional amount in the table above.
The Partnership records unrealized gains and losses on its interest rate swaps as a component of accumulated other comprehensive loss, net of tax, which is reclassified to earnings as interest expense when the payments are made. As of March 31, 2022, the amount of unrealized gains, net of tax, expected to be reclassified to earnings during the following twelve-month period was $0.1 million.
10. Commitments and Contingencies
Legal, Environmental and Other Proceedings

    The Partnership is subject to a tax on sales made in Quebec from product it imports into the province. During an audit by the Quebec Energy Board (QEB) of the annual filings, the Partnership initiated legal action seeking a declaration to limit the applicability of the tax to direct imports, as well as the periods subject to review. Since filing this legal action in June 2018, the Partnership has been assessed $8.8 million of tax, including interest and penalties, for the period of 2007 to 2020. Similarly, since the filing, the Partnership has been assessed $10.5 million, including a 15% penalty and interest, from the Ministry of the Environment, and the Fight Against Climate Change (known as MELCC) under separate regulation that was in effect for the period from 2007 through 2014. The Partnership is disputing this assessment on the same basis as set out in the QEB legal action described above. The Partnership has accrued an amount which it believes to be a reasonable estimate of the low end of a range of loss related to these matters and such amount is not material to the consolidated financial statements.

On September 14, 2020, a purported class action complaint was filed against Sprague Operating Resources, LLC ("SOR"), one of the Partnership’s subsidiaries, in the U.S. District Court for the District of Rhode Island. The complaint, since amended, alleges causes of action for private nuisance, public nuisance, and negligence, each based on emission impacts to nearby occupants from the Partnership’s oil and natural gas facility located in Providence, Rhode Island. The complaint also alleges that the amount in controversy exceeds $5.0 million. At this early stage in the litigation, the Partnership cannot predict whether the plaintiff will succeed in getting the court to certify a class. Based upon the information currently available to it, the Partnership believes that the complaint is without merit and intends to vigorously defend against it.

In May 2021, the New York City Department of Citywide Administrative Services (DCAS) initiated legal action against SOR, alleging that the SOR failed to pay the city $8.5 million in biodiesel tax credits for product purchased for the period of 2017 through 2019. SOR is disputing the claim and the Partnership has accrued an amount which it believes to be a reasonable estimate of the low end of a range of loss related to this matter and such amount is not material to the consolidated financial statements.

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The Partnership is involved in other various lawsuits, other proceedings and environmental matters, all of which arose in the normal course of business. The Partnership believes, based upon its examination of currently available information, its experience to date, and advice from legal counsel, that the individual and aggregate liabilities resulting from the resolution of these contingent matters will not have a material adverse impact on the Partnership’s consolidated results of operations, financial position or cash flows.
11. Equity and Equity-Based Compensation
Equity Awards - Performance-based Phantom Units
Effective March 5, 2021, the board of directors used its discretion to terminate all phantom unit awards granted in 2018, 2019 and 2020. In consideration for this termination, the board of directors paid a higher 2020 cash bonus, issued 172,702 vested common units to each of the Partnership's Named Executive Officers and certain other employees and issued new long-term incentive awards payable in units or cash which vest over a three-year service period. The 2020 cash bonus amounts were expensed during the year ended December 31, 2020 and accrued for as of December 31, 2020. The Partnership accounted for the cancellation of the previously outstanding phantom unit awards and the issuance of the vested units and long term incentive awards as a modification which resulted in immaterial incremental compensation expense.
Unit-based compensation is included in selling, general and administrative expenses. There was no unit-based compensation expense for the three months ended March 31, 2022 as compared to $0.2 million for the three months ended March 31, 2021. The Partnership didn't have any unrecognized compensation cost related to performance-based phantom units as of March 31, 2022.
Equity - Changes in Partnership's Units
The following table provides information with respect to changes in the Partnership’s units:
 Common Units
 PublicSprague Holdings
Balance as of December 31, 20209,995,069 12,951,236 
Units issued in connection with employee bonus172,702 — 
Director vested awards8,292 — 
Units issued in conjunction with IDR Reset Election— 3,107,248 
Increase in affiliated units as a result of acquisition by Hartree Partners, LP(2,115,365)2,115,365 
Increase in affiliated units as a result of change in beneficial ownership of Hartree Bulk Storage LLC(1,375,000)1,375,000 
Balance as of December 31, 20216,685,698 19,548,849 
There were no changes with respect to the Partnership's units for the three months ended March 31, 2022.

IDR Reset Election

On February 11, 2021, Sprague Holdings provided notice to the Partnership that Sprague Holdings had made the IDR Reset Election. 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 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.
12. Earnings Per Unit
The Partnership has identified the IDRs as participating securities and uses the two-class method when calculating the net income per unit applicable to limited partners. Earnings per unit applicable to limited partners is computed by dividing limited partners’ interest in net income, after deducting any incentive distributions, by the weighted-average number of outstanding common units. The Partnership’s net income is allocated to the limited partners in accordance with their respective ownership percentages, after giving effect to priority income allocations for incentive distributions, which are declared and paid following
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the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to the Partnership’s unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of earnings per unit.
The weighted average common units outstanding used to compute net income per common unit for the three months ended March 31, 2022 and 2021 were 26,234,547 and 23,893,846, respectively. There was no dilutive effect on units for March 31, 2022 or March 31, 2021.

13. Partnership Distributions
The Partnership's partnership agreement sets forth the calculation to be used to determine the amount and priority of cash distributions that the common unitholders will receive.
Cash distributions for the periods indicated were as follows:
Quarter EndedPayment Date Per UnitCommonIDRTotal
December 31, 2021February 9, 2022$0.4338$11,380 $ $11,380 

In addition, on April 25, 2022, the Partnership declared a cash distribution for the three months ended March 31, 2022, of $0.4338 per unit, totaling $11.4 million. Such distribution was paid on May 11, 2022, to unitholders of record on May 6, 2022.

14. Subsequent Events
On April 13, 2022, 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 second amendment to the second amended and restated credit agreement (the “Amendment”), which amended the second amended and restated credit agreement, dated May 19, 2020 (as previously amended, the “Credit Agreement”).
Upon the effective date, the Amendment (i) increased the (x) committed U.S. dollar revolving working capital facility from $465,000,000 to $535,900,000, (y) the uncommitted U.S. dollar revolving working capital facility from $200,000,000 to $255,000,000 and (z) committed multicurrency revolving working capital facility from $85,000,000 to $96,600,000, (ii) replaced the ability of the Borrowers to elect that borrowings accrue interest at the London Inter-Bank Offered Rate, plus a margin, with the ability of the Borrowers to elect that borrowings accrue interest at a forward-looking term rate based on the secured overnight financing rate (“Term Sour”), plus a margin and a Term SOFR spread adjustment, and (iii) extended the permitted expiration date of letters of credit from six months to one year after the applicable facility termination date.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used in this Quarterly Report on Form 10-Q ("Quarterly Report"), unless the context otherwise requires, prior to May 28, 2021, references to "Sprague Resources," the "Partnership," "we," "our," "us," or like terms, refer to Sprague Resources LP and its subsidiaries; references to our "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; and references to "Sprague Holdings" refer to Sprague Resources Holdings LLC, a wholly owned subsidiary of Axel Johnson and the owner of our General Partner. Prior to May 28, 2021, our General Partner was a wholly owned subsidiary of Axel Johnson.
As used in this Quarterly Report on Form 10-Q ("Quarterly Report"), unless the context otherwise requires, effective May 28, 2021, references to "Sprague Resources," the "Partnership," "we," "our," "us," or like terms, refer to Sprague Resources LP and its subsidiaries; references to our "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; and references to "Sprague Holdings" refer to Sprague HP Holdings, LLC, a wholly owned subsidiary of Hartree and the owner of our General Partner. Effective May 28, 2021, our General Partner is a wholly owned subsidiary of Hartree.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report and any information incorporated by reference, contains statements that we believe are “forward-looking statements”. Forward looking statements are statements that express our belief, expectations, estimates, or intentions, as well as those statements we make that are not statements of historical fact, including, among other things, statements relating to the Transaction (as defined below) and the expected benefits thereof. Forward-looking statements provide our current expectations and contain projections of results of operations, or financial condition, and/ or forecasts of future events. Words such as “may”, “assume”, “forecast”, “position”, “seek”, “predict”, “strategy”, “expect”, “intend”, “plan”, “estimate”, “anticipate”, “believe”, “project”, “budget”, “outlook”, “potential”, “will”, “could”, “should”, or “continue”, and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties which could cause our actual results to differ materially from those contained in any forward-looking statement. Consequently, no forward-looking statements can be guaranteed. You are cautioned not to place undue reliance on any forward-looking statements.

Factors that could cause actual results to differ from those in the forward-looking statements include, but are not limited to: (i) changes in federal, state, local, and foreign laws or regulations including those that permit us to be treated as a partnership for federal income tax purposes, those that govern environmental protection and those that regulate the sale of our products to our customers; (ii) changes in the marketplace for our products or services resulting from events such as dramatic changes in commodity prices, increased competition, increased energy conservation, increased use of alternative fuels and new technologies, changes in local, domestic or international inventory levels, seasonality, changes in supply, weather and logistics disruptions, or general reductions in demand; (iii) security risks including terrorism and cyber-risk, (iv) adverse weather conditions, particularly warmer winter seasons and cooler summer seasons, climate change, environmental releases and natural disasters; (v) adverse local, regional, national, or international economic conditions, including but not limited to, public health crises that reduce economic activity, affect the demand for travel (public and private), as well as impacting costs of operation and availability of supply (including the coronavirus COVID-19 outbreak), unfavorable capital market conditions and detrimental political developments such as the inability to move products between foreign locales and the United States; (vi) nonpayment or nonperformance by our customers or suppliers; (vii) shutdowns or interruptions at our terminals and storage assets or at the source points for the products we store or sell, disruptions in our labor force, as well as disruptions in our information technology systems; (viii) unanticipated capital expenditures in connection with the construction, repair, or replacement of our assets; (ix) our ability to integrate acquired assets with our existing assets and to realize anticipated cost savings and other efficiencies and benefits; and (x) our ability to successfully complete our organic growth and acquisition projects and/or to realize the anticipated financial and operational benefits. These are not all of the important factors that could cause actual results to differ materially from those expressed in our forward-looking statements. Other known or unpredictable factors could also have material adverse effects on future results. Consequently, all of the forward-looking statements made in this Quarterly Report are qualified by these cautionary statements, and we cannot assure you that actual results or developments that we anticipate will be realized or, even if realized, will have the expected consequences to or effect on us or our business or operations. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report may not occur.

When considering these forward-looking statements, please note that we provide additional cautionary discussion of risks and uncertainties in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 4, 2022 (the “2021 Annual Report”), in Part I, Item 1A “Risk Factors”, in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk”. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report may not occur.

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Forward-looking statements contained in this Quarterly Report speak only as of the date of this Quarterly Report (or other date as specified in this Quarterly Report) or as of the date given if provided in another filing with the SEC. We undertake no obligation, and disclaim any obligation, to publicly update, review or revise any forward-looking statements to reflect events or circumstances after the date of such statements. All forward looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in our existing and future periodic reports filed with the SEC.
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Overview
We are a Delaware limited partnership formed in June 2011 by Sprague Holdings and our General Partner. We engage in the purchase, storage, distribution and sale of refined products and natural gas, and provide storage and handling services for a broad range of materials. In October 2013, we became a publicly traded master limited partnership ("MLP") and our common units representing limited partner interests are listed on the New York Stock Exchange ("NYSE") under the ticker symbol “SRLP".
Our Predecessor was founded in 1870 as the Charles H. Sprague Company in Boston, Massachusetts; and, in 1905, the company opened the Penobscot Coal and Wharf Company, a tidewater terminal located in Searsport, Maine. By World War II, the company was operating eleven terminals and a fleet of two dozen vessels transporting coal and other products throughout the world. As fuel needs diversified in the United States, the company expanded its product offerings and invested in terminals, tankers, and product handling activities. In 1959, the company expanded its oil marketing activities via entry into the distillate oil market. In 1970, the company was sold to Royal Dutch Shell’s Asiatic Petroleum subsidiary; and, in 1972, Royal Dutch Shell sold the company to Axel Johnson Inc., a member of the Axel Johnson Group of Stockholm, Sweden.
On April 20, 2021, the Partnership and Hartree Partner, 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.
On January 11, 2022, the Partnership received an unsolicited non-binding proposal from Hartree pursuant to which Hartree would acquire all of the outstanding common units of the Partnership that Hartree and its affiliates do not already own in exchange for $16.50 in cash for each such common unit. The board of directors of the General Partner has delegated authority to evaluate and negotiate the proposal to its conflicts committee. The conflicts committee's evaluation process is currently ongoing.
The Partnership is one of the largest independent wholesale distributors of refined products in the Northeast United States based on aggregate terminal capacity. We own, operate and/or control a network of refined products and materials handling terminals and storage facilities predominantly located in the Northeast United States from New York to Maine and in Quebec, Canada that have a combined storage tank capacity of approximately 14.3 million barrels for refined products and other liquid materials, as well as approximately 2.0 million square feet of materials handling capacity. We also have access to approximately 51 third-party terminals in the Northeast United States through which we sell or distribute refined products pursuant to rack, exchange and throughput agreements.
We operate under four business segments: refined products, natural gas, materials handling and other operations. See Note 8 - Segment Reporting to our Condensed Consolidated Financial Statements for a presentation of financial results by reportable segment and see Part I, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations for a discussion of financial results by segment.
In our refined products segment we purchase 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 sell them to our customers. We have wholesale customers who resell the refined products we sell to them and commercial customers who consume the refined products directly. Our wholesale customers consist of approximately 900 home heating oil retailers and diesel fuel and gasoline resellers. Our 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. Our customers also include businesses engaged in the development of natural gas resources in Pennsylvania and surrounding states.
In our natural gas segment we purchase natural gas from natural gas producers and trading companies and sell and distribute natural gas to approximately 15,000 commercial and industrial customer locations across 13 states in the Northeast and Mid-Atlantic United States and Canada.
Our materials handling segment is 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. We offload, store and/or prepare 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. Historically, a majority of our materials handling activity has generated qualified income.
Our other operations segment primarily includes the marketing and distribution of coal conducted in our Portland, Maine terminal, and commercial trucking activity conducted by our Canadian subsidiary.
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