UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20222023
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 No. 001-35711
CROSSAMERICA PARTNERS LP
(Exact name of registrant as specified in its charter)
Delaware | 45-4165414 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
645 Hamilton Street, Suite 400 Allentown, PA | 18101 (Zip Code) (610) 625-8000 | |
(Address of Principal Executive Offices) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Units | CAPL | New 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 filer ☐ | Accelerated filer ☒ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of NovemberAugust 3, 2022,2023, the registrant had outstanding 37,928,97037,970,720 common units.
TABLE OF CONTENTS
COMMONLY USED DEFINED TERMS
The following is a list of certain acronyms and terms generally used in the industry and throughout this document: | |||
CrossAmerica Partners LP and subsidiaries: | |||
CrossAmerica | CrossAmerica Partners LP, the Partnership, CAPL, we, us, our | ||
Holdings | CAPL JKM Holdings LLC, an indirect wholly-owned subsidiary of CrossAmerica and sole member of CAPL JKM Partners | ||
CAPL JKM Partners | CAPL JKM Partners LLC, a wholly-owned subsidiary of Holdings | ||
Joe’s Kwik Marts | Joe’s Kwik Marts LLC, a wholly-owned subsidiary of CAPL JKM Partners | ||
LGWS | Lehigh Gas Wholesale Services, Inc., an indirect wholly-owned subsidiary of CrossAmerica | ||
CrossAmerica Partners LP related parties: | |||
DMI | Dunne Manning Inc. (formerly Lehigh Gas Corporation), an entity affiliated with the Topper Group | ||
General Partner | CrossAmerica GP LLC, the General Partner of CrossAmerica, a Delaware limited liability company, indirectly owned by the Topper Group. | ||
Topper Group | Joseph V. Topper, Jr., collectively with his affiliates and family trusts that have ownership interests in the Partnership. Joseph V. Topper, Jr. is the founder of the Partnership and a member of the Board. The Topper Group is a related party and large holder of our common | ||
TopStar | TopStar Inc., an entity affiliated with a family member of Joseph V. Topper, Jr. TopStar is an operator of convenience stores that leases retail sites from us, and since April 14, 2020, also purchases fuel from us. | ||
Other Defined Terms: | |||
7-Eleven | 7-Eleven, Inc. | ||
ASC | Accounting Standards Codification | ||
AOCI | Accumulated other comprehensive income | ||
ASU | Accounting Standards Update | ||
Board | Board of Directors of our General Partner | ||
Bonus Plan | The Performance-Based Bonus Compensation Policy is one of the key components of “at-risk” compensation. The Bonus Plan is utilized to reward short-term performance achievements and to motivate and reward employees for their contributions toward meeting financial and strategic goals. | ||
CAPL Credit Facility | Credit Agreement, dated as of April 1, 2019, as amended by the First Amendment to Credit Agreement, dated as of November 19, 2019, and by the Second Amendment to Credit Agreement, dated as of July 28, 2021, and as amended and restated by the Amendment and Restatement Agreement, dated as of March 31, 2023, among the Partnership and Lehigh Gas Wholesale Services, Inc., as borrowers, the guarantors from time to time party thereto, the lenders from time to time party thereto and Citizens Bank, N.A., as administrative agent. | ||
|
| ||
CSS | Community Service Stations, Inc. | ||
DTW | Dealer tank wagon contracts, which are variable market-based cent per gallon priced wholesale motor fuel distribution or supply contracts; DTW also refers to the pricing methodology under such contracts | ||
EBITDA | Earnings before interest, taxes, depreciation, amortization and accretion, a non-GAAP financial measure | ||
EMV | Payment method based upon a technical standard for smart payment cards, also referred to as chip cards | ||
i
Exchange Act | Securities Exchange Act of 1934, as amended | |
i
Form 10-K | CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, | |
Internal Revenue Code | Internal Revenue Code of 1986, as amended | |
IPO | Initial public offering of CrossAmerica Partners LP on October 30, 2012 | |
JKM Credit Facility | Credit Agreement, dated as of July 16, 2021, as amended on July 29, 2021 among CAPL JKM Partners, Holdings and Manufacturers and Traders Trust Company, as administrative agent, swingline lender and issuing | |
LIBOR | London Interbank Offered Rate | |
MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
NYSE | New York Stock Exchange | |
Omnibus Agreement | The Omnibus Agreement, effective January 1, 2020, by and among the Partnership, the General Partner and DMI. The terms of the Omnibus Agreement were approved by the independent conflicts committee of the Board, which is composed of the independent directors of the Board. Pursuant to the Omnibus Agreement, DMI agrees, among other things, to provide, or cause to be provided, to the Partnership certain management services at cost without markup. | |
Partnership Agreement | Second Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated as of February 6, 2020 | |
Predecessor Entity | Wholesale distribution contracts and real property and leasehold interests contributed to the Partnership in connection with the IPO | |
SEC | U.S. Securities and Exchange Commission | |
SOFR | Secured Overnight Financing Rate | |
Term Loan Facility | $185 million delayed draw term loan facility provided under the JKM Credit Facility, which was paid off and terminated March 31, 2023 | |
U.S. GAAP | U.S. Generally Accepted Accounting Principles | |
WTI | West Texas Intermediate crude oil |
ii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROSSAMERICA PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except unit data)
(Unaudited)
|
| September 30, |
| December 31, |
|
| June 30, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
| ||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 11,788 |
|
| $ | 7,648 |
|
| $ | 4,491 |
|
| $ | 16,054 |
|
Accounts receivable, net of allowances of $594 and $458, respectively |
|
| 33,561 |
|
|
| 33,331 |
| ||||||||
Accounts receivable, net of allowances of $723 and $686, respectively |
|
| 34,734 |
|
|
| 30,825 |
| ||||||||
Accounts receivable from related parties |
|
| 863 |
|
|
| 1,149 |
|
|
| 668 |
|
|
| 743 |
|
Inventory |
|
| 47,258 |
|
|
| 46,100 |
|
|
| 51,965 |
|
|
| 47,307 |
|
Assets held for sale |
|
| 7,097 |
|
|
| 4,907 |
|
|
| 1,001 |
|
|
| 983 |
|
Current portion of interest rate swap contracts |
|
| 15,442 |
|
|
| 13,827 |
| ||||||||
Other current assets |
|
| 21,999 |
|
|
| 13,180 |
|
|
| 7,818 |
|
|
| 8,667 |
|
Total current assets |
|
| 122,566 |
|
|
| 106,315 |
|
|
| 116,119 |
|
|
| 118,406 |
|
Property and equipment, net |
|
| 738,200 |
|
|
| 755,454 |
|
|
| 709,099 |
|
|
| 728,379 |
|
Right-of-use assets, net |
|
| 161,196 |
|
|
| 169,333 |
|
|
| 156,897 |
|
|
| 164,942 |
|
Intangible assets, net |
|
| 95,004 |
|
|
| 114,187 |
|
|
| 103,450 |
|
|
| 113,919 |
|
Goodwill |
|
| 99,409 |
|
|
| 100,464 |
|
|
| 99,409 |
|
|
| 99,409 |
|
Interest rate swap contracts, less current portion |
|
| 4,657 |
|
|
| 3,401 |
| ||||||||
Other assets |
|
| 30,163 |
|
|
| 24,389 |
|
|
| 27,944 |
|
|
| 26,142 |
|
Total assets |
| $ | 1,246,538 |
|
| $ | 1,270,142 |
|
| $ | 1,217,575 |
|
| $ | 1,254,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current portion of debt and finance lease obligations |
| $ | 8,376 |
|
| $ | 10,939 |
|
| $ | 2,985 |
|
| $ | 11,151 |
|
Current portion of operating lease obligations |
|
| 35,451 |
|
|
| 34,832 |
|
|
| 35,076 |
|
|
| 35,345 |
|
Accounts payable |
|
| 80,267 |
|
|
| 67,173 |
|
|
| 76,953 |
|
|
| 77,048 |
|
Accounts payable to related parties |
|
| 8,464 |
|
|
| 7,679 |
|
|
| 8,872 |
|
|
| 7,798 |
|
Accrued expenses and other current liabilities |
|
| 22,856 |
|
|
| 20,682 |
|
|
| 25,068 |
|
|
| 23,144 |
|
Motor fuel and sales taxes payable |
|
| 20,780 |
|
|
| 22,585 |
|
|
| 21,359 |
|
|
| 20,813 |
|
Total current liabilities |
|
| 176,194 |
|
|
| 163,890 |
|
|
| 170,313 |
|
|
| 175,299 |
|
Debt and finance lease obligations, less current portion |
|
| 752,193 |
|
|
| 810,635 |
|
|
| 760,064 |
|
|
| 761,638 |
|
Operating lease obligations, less current portion |
|
| 131,302 |
|
|
| 140,149 |
|
|
| 127,277 |
|
|
| 135,220 |
|
Deferred tax liabilities, net |
|
| 11,664 |
|
|
| 12,341 |
|
|
| 11,170 |
|
|
| 10,588 |
|
Asset retirement obligations |
|
| 46,352 |
|
|
| 45,366 |
|
|
| 47,083 |
|
|
| 46,431 |
|
Other long-term liabilities |
|
| 46,171 |
|
|
| 41,203 |
|
|
| 46,071 |
|
|
| 46,289 |
|
Total liabilities |
|
| 1,163,876 |
|
|
| 1,213,584 |
|
|
| 1,161,978 |
|
|
| 1,175,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred membership interests |
|
| 25,549 |
|
|
| — |
|
|
| 27,253 |
|
|
| 26,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common units—37,928,970 and 37,896,556 units issued and |
|
| 39,811 |
|
|
| 53,528 |
| ||||||||
Common units— 37,952,950 and 37,937,604 units issued and |
|
| 9,217 |
|
|
| 36,508 |
| ||||||||
Accumulated other comprehensive income |
|
| 17,302 |
|
|
| 3,030 |
|
|
| 19,127 |
|
|
| 16,469 |
|
Total equity |
|
| 57,113 |
|
|
| 56,558 |
|
|
| 28,344 |
|
|
| 52,977 |
|
Total liabilities and equity |
| $ | 1,246,538 |
|
| $ | 1,270,142 |
|
| $ | 1,217,575 |
|
| $ | 1,254,598 |
|
See Condensed Notes to Consolidated Financial Statements.The accompanying notes are an integral part of these consolidated financial statements.
1
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, except unit and per unit amounts)
(Unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Operating revenues (a) |
| $ | 1,274,407 |
|
| $ | 985,122 |
|
| $ | 3,842,651 |
|
| $ | 2,501,740 |
|
| $ | 1,145,396 |
|
| $ | 1,475,033 |
|
| $ | 2,161,555 |
|
| $ | 2,568,244 |
|
Cost of sales (b) |
|
| 1,159,677 |
|
|
| 909,391 |
|
|
| 3,560,146 |
|
|
| 2,306,047 |
| ||||||||||||||||
Costs of sales (b) |
|
| 1,047,672 |
|
|
| 1,386,088 |
|
|
| 1,981,772 |
|
|
| 2,400,469 |
| ||||||||||||||||
Gross profit |
|
| 114,730 |
|
|
| 75,731 |
|
|
| 282,505 |
|
|
| 195,693 |
|
|
| 97,724 |
|
|
| 88,945 |
|
|
| 179,783 |
|
|
| 167,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating expenses (c) |
|
| 46,845 |
|
|
| 34,548 |
|
|
| 131,170 |
|
|
| 95,021 |
|
|
| 49,798 |
|
|
| 42,216 |
|
|
| 95,421 |
|
|
| 84,325 |
|
General and administrative expenses |
|
| 6,599 |
|
|
| 9,903 |
|
|
| 18,762 |
|
|
| 24,429 |
|
|
| 7,475 |
|
|
| 5,680 |
|
|
| 13,214 |
|
|
| 12,163 |
|
Depreciation, amortization and accretion expense |
|
| 21,329 |
|
|
| 19,118 |
|
|
| 61,523 |
|
|
| 56,732 |
|
|
| 19,298 |
|
|
| 19,919 |
|
|
| 39,118 |
|
|
| 40,194 |
|
Total operating expenses |
|
| 74,773 |
|
|
| 63,569 |
|
|
| 211,455 |
|
|
| 176,182 |
|
|
| 76,571 |
|
|
| 67,815 |
|
|
| 147,753 |
|
|
| 136,682 |
|
(Loss) gain on dispositions and lease terminations, net |
|
| (318 | ) |
|
| 426 |
|
|
| (620 | ) |
|
| 375 |
| ||||||||||||||||
Gain (loss) on dispositions and lease terminations, net |
|
| 6,700 |
|
|
| (58 | ) |
|
| 4,933 |
|
|
| (302 | ) | ||||||||||||||||
Operating income |
|
| 39,639 |
|
|
| 12,588 |
|
|
| 70,430 |
|
|
| 19,886 |
|
|
| 27,853 |
|
|
| 21,072 |
|
|
| 36,963 |
|
|
| 30,791 |
|
Other income, net |
|
| 120 |
|
|
| 127 |
|
|
| 352 |
|
|
| 419 |
|
|
| 163 |
|
|
| 102 |
|
|
| 424 |
|
|
| 232 |
|
Interest expense |
|
| (8,351 | ) |
|
| (4,928 | ) |
|
| (22,333 | ) |
|
| (12,295 | ) |
|
| (10,683 | ) |
|
| (7,321 | ) |
|
| (22,695 | ) |
|
| (13,982 | ) |
Income before income taxes |
|
| 31,408 |
|
|
| 7,787 |
|
|
| 48,449 |
|
|
| 8,010 |
|
|
| 17,333 |
|
|
| 13,853 |
|
|
| 14,692 |
|
|
| 17,041 |
|
Income tax expense (benefit) |
|
| 3,815 |
|
|
| (1,065 | ) |
|
| 1,843 |
|
|
| (1,664 | ) |
|
| 2,797 |
|
|
| (113 | ) |
|
| 1,135 |
|
|
| (1,972 | ) |
Net income |
|
| 27,593 |
|
|
| 8,852 |
|
|
| 46,606 |
|
|
| 9,674 |
|
|
| 14,536 |
|
|
| 13,966 |
|
|
| 13,557 |
|
|
| 19,013 |
|
Accretion of preferred membership interests |
|
| 575 |
|
|
| — |
|
|
| 1,138 |
|
|
| — |
|
|
| 615 |
|
|
| 563 |
|
|
| 1,216 |
|
|
| 563 |
|
Net income available to limited partners |
| $ | 27,018 |
|
| $ | 8,852 |
|
| $ | 45,468 |
|
| $ | 9,674 |
|
| $ | 13,921 |
|
| $ | 13,403 |
|
| $ | 12,341 |
|
| $ | 18,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Earnings per common unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic |
| $ | 0.71 |
|
| $ | 0.23 |
|
| $ | 1.20 |
|
| $ | 0.26 |
|
| $ | 0.37 |
|
| $ | 0.35 |
|
| $ | 0.33 |
|
| $ | 0.49 |
|
Diluted |
| $ | 0.71 |
|
| $ | 0.23 |
|
| $ | 1.20 |
|
| $ | 0.26 |
|
| $ | 0.36 |
|
| $ | 0.35 |
|
| $ | 0.32 |
|
| $ | 0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Weighted-average limited partner units: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Basic common units |
|
| 37,925,082 |
|
|
| 37,887,493 |
|
|
| 37,912,737 |
|
|
| 37,877,273 |
| ||||||||||||||||
Diluted common units |
|
| 39,037,660 |
|
|
| 37,906,799 |
|
|
| 37,950,362 |
|
|
| 37,898,036 |
| ||||||||||||||||
Weighted-average common units: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Basic |
|
| 37,952,950 |
|
|
| 37,912,710 |
|
|
| 37,946,676 |
|
|
| 37,906,463 |
| ||||||||||||||||
Diluted |
|
| 38,150,236 |
|
|
| 37,957,434 |
|
|
| 38,143,697 |
|
|
| 37,951,466 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
(a) includes excise taxes of: |
| $ | 66,129 |
|
| $ | 62,427 |
|
| $ | 204,588 |
|
| $ | 156,180 |
|
| $ | 76,191 |
|
| $ | 71,601 |
|
| $ | 146,075 |
|
| $ | 138,460 |
|
(a) includes rent income of: |
|
| 21,260 |
|
|
| 21,498 |
|
|
| 62,736 |
|
|
| 62,832 |
|
|
| 20,523 |
|
|
| 20,849 |
|
|
| 41,843 |
|
|
| 41,476 |
|
(b) excludes depreciation, amortization and accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
(b) includes rent expense of: |
|
| 5,906 |
|
|
| 5,968 |
|
|
| 17,692 |
|
|
| 17,912 |
|
|
| 5,658 |
|
|
| 5,945 |
|
|
| 11,212 |
|
|
| 11,786 |
|
(c) includes rent expense of: |
|
| 4,012 |
|
|
| 3,353 |
|
|
| 11,521 |
|
|
| 9,814 |
|
|
| 3,911 |
|
|
| 3,801 |
|
|
| 7,709 |
|
|
| 7,509 |
|
See Condensed Notes to Consolidated Financial Statements.The accompanying notes are an integral part of these consolidated financial statements.
2
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 46,606 |
|
| $ | 9,674 |
|
| $ | 13,557 |
|
| $ | 19,013 |
|
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
| ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by |
|
|
|
|
|
| ||||||||||
Depreciation, amortization and accretion expense |
|
| 61,523 |
|
|
| 56,732 |
|
|
| 39,118 |
|
|
| 40,194 |
|
Amortization of deferred financing costs |
|
| 2,053 |
|
|
| 1,182 |
|
|
| 2,325 |
|
|
| 1,370 |
|
Credit loss expense |
|
| 139 |
|
|
| 70 |
|
|
| 37 |
|
|
| 88 |
|
Deferred income tax benefit |
|
| (677 | ) |
|
| (2,199 | ) |
|
| 582 |
|
|
| (2,836 | ) |
Equity-based employee and director compensation expense |
|
| 1,608 |
|
|
| 1,096 |
|
|
| 1,123 |
|
|
| 954 |
|
Loss (gain) on dispositions and lease terminations, net |
|
| 620 |
|
|
| (375 | ) | ||||||||
(Gain) loss on dispositions and lease terminations, net |
|
| (4,933 | ) |
|
| 302 |
| ||||||||
Changes in operating assets and liabilities, net of acquisitions |
|
| 14,588 |
|
|
| 10,087 |
|
|
| (4,546 | ) |
|
| (4,426 | ) |
Net cash provided by operating activities |
|
| 126,460 |
|
|
| 76,267 |
|
|
| 47,263 |
|
|
| 54,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Principal payments received on notes receivable |
|
| 102 |
|
|
| 151 |
|
|
| 107 |
|
|
| 66 |
|
Proceeds from sale of assets |
|
| 4,398 |
|
|
| 11,012 |
|
|
| 4,533 |
|
|
| 3,793 |
|
Capital expenditures |
|
| (26,784 | ) |
|
| (32,370 | ) |
|
| (11,328 | ) |
|
| (16,403 | ) |
Cash paid in connection with acquisitions, net of cash acquired |
|
| (1,885 | ) |
|
| (261,993 | ) |
|
| — |
|
|
| (1,885 | ) |
Net cash used in investing activities |
|
| (24,169 | ) |
|
| (283,200 | ) |
|
| (6,688 | ) |
|
| (14,429 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Borrowings under revolving credit facilities |
|
| 64,600 |
|
|
| 167,000 |
|
|
| 205,900 |
|
|
| 57,600 |
|
Repayments on revolving credit facilities |
|
| (101,815 | ) |
|
| (43,452 | ) |
|
| (50,546 | ) |
|
| (61,620 | ) |
Borrowings under the Term Loan Facility |
|
| 1,120 |
|
|
| 159,950 |
|
|
| — |
|
|
| 1,120 |
|
Repayments on the Term Loan Facility |
|
| (24,600 | ) |
|
| — |
|
|
| (158,980 | ) |
|
| (24,600 | ) |
Net proceeds from issuance of preferred membership interests |
|
| 24,430 |
|
|
| — |
|
|
| — |
|
|
| 24,430 |
|
Payments of finance lease obligations |
|
| (2,030 | ) |
|
| (1,944 | ) |
|
| (1,417 | ) |
|
| (1,337 | ) |
Payments of deferred financing costs |
|
| (6 | ) |
|
| (7,135 | ) |
|
| (7,022 | ) |
|
| (6 | ) |
Distributions paid on distribution equivalent rights |
|
| (137 | ) |
|
| (93 | ) |
|
| (111 | ) |
|
| (93 | ) |
Income tax distributions paid on preferred membership interests |
|
| (119 | ) |
|
| — |
| ||||||||
Distributions paid on common units |
|
| (59,713 | ) |
|
| (59,659 | ) |
|
| (39,843 | ) |
|
| (39,800 | ) |
Net cash (used in) provided by financing activities |
|
| (98,151 | ) |
|
| 214,667 |
| ||||||||
Net increase in cash and cash equivalents |
|
| 4,140 |
|
|
| 7,734 |
| ||||||||
Net cash used in financing activities |
|
| (52,138 | ) |
|
| (44,306 | ) | ||||||||
Net decrease in cash and cash equivalents |
|
| (11,563 | ) |
|
| (4,076 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents at beginning of period |
|
| 7,648 |
|
|
| 513 |
|
|
| 16,054 |
|
|
| 7,648 |
|
Cash and cash equivalents at end of period |
| $ | 11,788 |
|
| $ | 8,247 |
|
| $ | 4,491 |
|
| $ | 3,572 |
|
See Condensed Notes to Consolidated Financial Statements.The accompanying notes are an integral part of these consolidated financial statements.
3
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(Thousands of Dollars, except unit amounts)
(Unaudited)
|
| Limited Partners’ Interest |
|
|
|
|
|
|
|
| Limited Partners' Interest |
|
| AOCI |
|
| Total Equity |
| ||||||||||||||
|
| Common Unitholders |
|
| AOCI |
|
| Total Equity |
|
| Units |
|
| Dollars |
|
| Dollars |
|
| Dollars |
| |||||||||||
Balance at December 31, 2022 |
|
| 37,937,604 |
|
| $ | 36,508 |
|
| $ | 16,469 |
|
| $ | 52,977 |
| ||||||||||||||||
Net loss |
|
| — |
|
|
| (979 | ) |
|
| — |
|
|
| (979 | ) | ||||||||||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Unrealized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 137 |
|
|
| 137 |
| ||||||||||||||||
Realized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| (3,055 | ) |
|
| (3,055 | ) | ||||||||||||||||
Total other comprehensive loss |
|
| — |
|
|
| — |
|
|
| (2,918 | ) |
|
| (2,918 | ) | ||||||||||||||||
Comprehensive loss |
|
| — |
|
|
| (979 | ) |
|
| (2,918 | ) |
|
| (3,897 | ) | ||||||||||||||||
Issuance of units related to 2022 Bonus Plan |
|
| 15,346 |
|
|
| 322 |
|
|
| — |
|
|
| 322 |
| ||||||||||||||||
Accretion of preferred membership interests |
|
| — |
|
|
| (601 | ) |
|
| — |
|
|
| (601 | ) | ||||||||||||||||
Distributions paid |
|
| — |
|
|
| (19,974 | ) |
|
| — |
|
|
| (19,974 | ) | ||||||||||||||||
Balance at March 31, 2023 |
|
| 37,952,950 |
|
| $ | 15,276 |
|
| $ | 13,551 |
|
| $ | 28,827 |
| ||||||||||||||||
|
| Units |
|
| Dollars |
|
| Dollars |
|
| Dollars |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at June 30, 2022 |
|
| 37,912,710 |
|
| $ | 32,412 |
|
| $ | 13,682 |
|
| $ | 46,094 |
| ||||||||||||||||
Net income |
|
| — |
|
|
| 27,593 |
|
|
| — |
|
|
| 27,593 |
|
|
| — |
|
|
| 14,536 |
|
|
| — |
|
|
| 14,536 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Unrealized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 4,992 |
|
|
| 4,992 |
|
|
| — |
|
|
| — |
|
|
| 9,898 |
|
|
| 9,898 |
|
Realized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| (1,372 | ) |
|
| (1,372 | ) |
|
| — |
|
|
| — |
|
|
| (4,322 | ) |
|
| (4,322 | ) |
Total other comprehensive income |
|
| — |
|
|
| — |
|
|
| 3,620 |
|
|
| 3,620 |
|
|
| — |
|
|
| — |
|
|
| 5,576 |
|
|
| 5,576 |
|
Comprehensive income |
|
| — |
|
|
| 27,593 |
|
|
| 3,620 |
|
|
| 31,213 |
|
|
| — |
|
|
| 14,536 |
|
|
| 5,576 |
|
|
| 20,112 |
|
Vesting of equity awards, net of units withheld for tax |
|
| 16,260 |
|
|
| 338 |
|
|
| — |
|
|
| 338 |
| ||||||||||||||||
Accretion of preferred membership interests |
|
| — |
|
|
| (575 | ) |
|
| — |
|
|
| (575 | ) |
|
| — |
|
|
| (615 | ) |
|
| — |
|
|
| (615 | ) |
Distributions paid |
|
| — |
|
|
| (19,957 | ) |
|
| — |
|
|
| (19,957 | ) |
|
| — |
|
|
| (19,980 | ) |
|
| — |
|
|
| (19,980 | ) |
Balance at September 30, 2022 |
|
| 37,928,970 |
|
| $ | 39,811 |
|
| $ | 17,302 |
|
| $ | 57,113 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Balance at June 30, 2021 |
|
| 37,874,868 |
|
| $ | 72,162 |
|
| $ | (23 | ) |
| $ | 72,139 |
| ||||||||||||||||
Net income |
|
| — |
|
|
| 8,852 |
|
|
| — |
|
|
| 8,852 |
| ||||||||||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Unrealized loss on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| (89 | ) |
|
| (89 | ) | ||||||||||||||||
Realized loss on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 265 |
|
|
| 265 |
| ||||||||||||||||
Total other comprehensive income |
|
| — |
|
|
| — |
|
|
| 176 |
|
|
| 176 |
| ||||||||||||||||
Comprehensive income |
|
| — |
|
|
| 8,852 |
|
|
| 176 |
|
|
| 9,028 |
| ||||||||||||||||
Vesting of equity awards, net of units withheld for tax |
|
| 16,833 |
|
|
| 318 |
|
|
| — |
|
|
| 318 |
| ||||||||||||||||
Tax effect from intra-entity transfer of assets |
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| (12 | ) | ||||||||||||||||
Distributions paid |
|
| — |
|
|
| (19,924 | ) |
|
| — |
|
|
| (19,924 | ) | ||||||||||||||||
Balance at September 30, 2021 |
|
| 37,891,701 |
|
| $ | 61,396 |
|
| $ | 153 |
|
| $ | 61,549 |
| ||||||||||||||||
Balance at June 30, 2023 |
|
| 37,952,950 |
|
| $ | 9,217 |
|
| $ | 19,127 |
|
| $ | 28,344 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at December 31, 2021 |
|
| 37,896,556 |
|
| $ | 53,528 |
|
| $ | 3,030 |
|
| $ | 56,558 |
|
|
| 37,896,556 |
|
| $ | 53,528 |
|
| $ | 3,030 |
|
| $ | 56,558 |
|
Net income |
|
| — |
|
|
| 46,606 |
|
|
| — |
|
|
| 46,606 |
| ||||||||||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Unrealized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 15,689 |
|
|
| 15,689 |
| ||||||||||||||||
Realized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| (1,417 | ) |
|
| (1,417 | ) | ||||||||||||||||
Total other comprehensive income |
|
| — |
|
|
| — |
|
|
| 14,272 |
|
|
| 14,272 |
| ||||||||||||||||
Comprehensive income |
|
| — |
|
|
| 46,606 |
|
|
| 14,272 |
|
|
| 60,878 |
| ||||||||||||||||
Issuance of units related to 2020 Bonus Plan |
|
| 16,154 |
|
|
| 327 |
|
|
| — |
|
|
| 327 |
| ||||||||||||||||
Vesting of equity awards, net of units withheld for tax |
|
| 16,260 |
|
|
| 338 |
|
|
| — |
|
|
| 338 |
| ||||||||||||||||
Accretion of preferred membership interests |
|
| — |
|
|
| (1,138 | ) |
|
| — |
|
|
| (1,138 | ) | ||||||||||||||||
Distributions paid |
|
| — |
|
|
| (59,850 | ) |
|
| — |
|
|
| (59,850 | ) | ||||||||||||||||
Balance at September 30, 2022 |
|
| 37,928,970 |
|
| $ | 39,811 |
|
| $ | 17,302 |
|
| $ | 57,113 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at December 31, 2020 |
|
| 37,868,046 |
|
| $ | 112,124 |
|
| $ | (2,456 | ) |
| $ | 109,668 |
| ||||||||||||||||
Net income |
|
| — |
|
|
| 9,674 |
|
|
| — |
|
|
| 9,674 |
|
|
| — |
|
|
| 5,047 |
|
|
| — |
|
|
| 5,047 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Unrealized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 1,860 |
|
|
| 1,860 |
|
|
| — |
|
|
| — |
|
|
| 8,113 |
|
|
| 8,113 |
|
Realized loss on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 749 |
|
|
| 749 |
|
|
| — |
|
|
| — |
|
|
| 206 |
|
|
| 206 |
|
Total other comprehensive income |
|
| — |
|
|
| — |
|
|
| 2,609 |
|
|
| 2,609 |
|
|
| — |
|
|
| — |
|
|
| 8,319 |
|
|
| 8,319 |
|
Comprehensive income |
|
| — |
|
|
| 9,674 |
|
|
| 2,609 |
|
|
| 12,283 |
|
|
| — |
|
|
| 5,047 |
|
|
| 8,319 |
|
|
| 13,366 |
|
Issuance of units related to 2020 Bonus Plan |
|
| 6,822 |
|
|
| 126 |
|
|
| — |
|
|
| 126 |
| ||||||||||||||||
Tax effect from intra-entity transfer of assets |
|
| — |
|
|
| (1,094 | ) |
|
| — |
|
|
| (1,094 | ) | ||||||||||||||||
Vesting of equity awards, net of units withheld for tax |
|
| 16,833 |
|
|
| 318 |
|
|
| — |
|
|
| 318 |
| ||||||||||||||||
Issuance of units related to 2021 Bonus Plan |
|
| 16,154 |
|
|
| 327 |
|
|
| — |
|
|
| 327 |
| ||||||||||||||||
Distributions paid |
|
| — |
|
|
| (59,752 | ) |
|
| — |
|
|
| (59,752 | ) |
|
| — |
|
|
| (19,942 | ) |
|
| — |
|
|
| (19,942 | ) |
Balance at September 30, 2021 |
|
| 37,891,701 |
|
| $ | 61,396 |
|
| $ | 153 |
|
| $ | 61,549 |
| ||||||||||||||||
Balance at March 31, 2022 |
|
| 37,912,710 |
|
| $ | 38,960 |
|
| $ | 11,349 |
|
| $ | 50,309 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income |
|
| — |
|
|
| 13,966 |
|
|
| — |
|
|
| 13,966 |
| ||||||||||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Unrealized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 2,584 |
|
|
| 2,584 |
| ||||||||||||||||
Realized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| (251 | ) |
|
| (251 | ) | ||||||||||||||||
Total other comprehensive income |
|
| — |
|
|
| — |
|
|
| 2,333 |
|
|
| 2,333 |
| ||||||||||||||||
Comprehensive income |
|
| — |
|
|
| 13,966 |
|
|
| 2,333 |
|
|
| 16,299 |
| ||||||||||||||||
Accretion of preferred membership interests |
|
| — |
|
|
| (563 | ) |
|
| — |
|
|
| (563 | ) | ||||||||||||||||
Distributions paid |
|
| — |
|
|
| (19,951 | ) |
|
| — |
|
|
| (19,951 | ) | ||||||||||||||||
Balance at June 30, 2022 |
|
| 37,912,710 |
|
| $ | 32,412 |
|
| $ | 13,682 |
|
| $ | 46,094 |
|
See Condensed Notes to Consolidated Financial Statements.The accompanying notes are an integral part of these consolidated financial statements.
4
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES
Our business consists of:
Interim Financial Statements
These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and the Exchange Act. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Management believes that the disclosures made are adequate to keep the information presented from being misleading. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K. Financial information as of SeptemberJune 30, 20222023 and for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 included in the consolidated financial statements has been derived from our unaudited financial statements. Financial information as of December 31, 20212022 has been derived from our audited financial statements and notes thereto as of that date.
Operating results for the three and ninesix months ended SeptemberJune 30, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023. Our business exhibits seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer activity months) and lowest during the winter months in the first and fourth quarters. The COVID-19 Pandemic has impacted our business and these seasonal trends typical in our business. See the “COVID-19 Pandemic” section below.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results and outcomes could differ from those estimates and assumptions. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.
SignificantRecently Adopted Accounting PoliciesPronouncements – Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, 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 to ease an entity’s financial reporting burden as the market transitions from LIBOR and other interbank offered rates to alternative reference rates. Subsequently, the FASB issued ASU 2021-01 to clarify the scope of Topic 848 and ASU 2022-06 to defer the sunset date of Topic 848. The guidance was effective upon issuance and may be applied through December 31, 2024. This guidance applied to our hedge accounting and hedge documentation as further discussed in Note 8, but did not have a material effect on the Partnership's consolidated financial statements.
Certain other new accounting pronouncements have become effective for our financial statements during 2022,2023, but the adoption of these pronouncements did not materially impact our financial position, results of operations or disclosures.
5
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentration Risk
For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, our wholesale business purchased approximately 8180% and 8081% of its motor fuel from four suppliers. Approximately 23% and 2824% of our motor fuel gallons sold for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, were delivered by two carriers.
For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, approximately 2018% and 1921% of our rent income was from two multi-site operators.
5
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, approximately 4947% and 4748% of our merchandise was purchased from one supplier.
COVID-19 Pandemic
During the first quarter of 2020, an outbreak of a novel strain of coronavirus spread worldwide, including to the U.S., posing public health risks that reached pandemic proportions. We experienced a sharp decrease in fuel volume in mid-to-late March 2020. Although the COVID Pandemic has not significantly impacted our results in 2022, fuel volume was recovering throughout 2021, which impacts the comparability of our results between periods.
Note 2. ACQUISITIONS
Acquisition of Assets from Community Service Stations, Inc.CSS
On August 24,November 9, 2022, we entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Community Service Stations, Inc., pursuant to which we have agreed to purchase certainclosed on the acquisition of assets from Community Service Stations, Inc.CSS for a purchase price of $27.5 million plus working capital. The assets consistconsisted of wholesale fuel supply contracts to 3938 dealer owned locations, 3435 sub-wholesaler accounts and two commission locations (1 fee based and 1 lease).
The We funded this acquisition is subject to customary conditions to closing. We expect the transaction to close during the fourth quarter of 2022. It is anticipated that the acquisition will be financed with cashthrough borrowings on hand and/or undrawn capacity under the CAPL Credit Facility.Facility and cash on hand.
Acquisition of Assets from 7-Eleven
In February 2022, we closed on the final three properties of our 106-site106-site acquisition from 7-Eleven for a purchase price of $3.6 million, (includingincluding inventory and other working capital),capital, of which $1.8 million will be paid on or prior to February 8, 2027.We recorded the purchase of these properties and adjustments to our previous purchase accounting for the first 103 properties as summarized in the table below (in thousands):
Inventories |
| $ | 271 |
|
Other current assets |
|
| 30 |
|
Property and equipment |
|
| 8,171 |
|
Intangible assets |
|
| (3,498 | ) |
Goodwill |
|
| (1,055 | ) |
Total assets |
| $ | 3,919 |
|
|
|
|
| |
Accrued expenses and other current liabilities |
|
| 116 |
|
Other non-current liabilities |
|
| 1,800 |
|
Asset retirement obligations |
|
| 118 |
|
Total liabilities |
| $ | 2,034 |
|
Net assets acquired |
| $ | 1,885 |
|
The fair value of inventory was estimated at retail selling price less estimated costs to sell and a reasonable profit allowance for the selling effort.
The fair value of land was based on a market approach. The value of buildings and equipment was based on a cost approach. The buildings and equipment are being depreciated on a straight-line basis, with estimated remaining useful lives of 20 years for the buildings and five to 30 years for equipment.
The fair value of the wholesale fuel distribution rights included in intangible assets was based on an income approach. Management believes the level and timing of cash flows represent relevant market participant assumptions. The wholesale fuel distribution rights are being amortized on a straight-line basis over an estimated useful life of approximately 10 years.
The fair value of goodwill represents expected synergies from combining operations, intangible assets that do not qualify for separate recognition, and other factors. All goodwill is anticipated to be deductible for tax purposes.
We funded these transactions primarily through the JKM Credit Facility as well as undrawn capacity under the CAPL Credit Facility and cash on hand.
6
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. ASSETS HELD FOR SALE
We have classified 18four sites and 12three sites as held for sale at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively, which are expected to be sold within one year of such classification. Assets held for sale were as follows (in thousands):
|
| June 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Land |
| $ | 698 |
|
| $ | 758 |
|
Buildings and site improvements |
|
| 723 |
|
|
| 457 |
|
Equipment |
|
| 971 |
|
|
| 333 |
|
Total |
|
| 2,392 |
|
|
| 1,548 |
|
Less accumulated depreciation |
|
| (1,391 | ) |
|
| (565 | ) |
Assets held for sale |
| $ | 1,001 |
|
| $ | 983 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Land |
| $ | 3,872 |
|
| $ | 3,042 |
|
Buildings and site improvements |
|
| 5,269 |
|
|
| 2,231 |
|
Equipment |
|
| 2,749 |
|
|
| 939 |
|
Total |
|
| 11,890 |
|
|
| 6,212 |
|
Less accumulated depreciation |
|
| (4,793 | ) |
|
| (1,305 | ) |
Assets held for sale |
| $ | 7,097 |
|
| $ | 4,907 |
|
The Partnership has continued to focus on divesting lower performing assets. During the three and ninesix months ended SeptemberJune 30, 2022,2023, we sold onesix and tenseven properties for $0.27.8 million and $4.08.2 million in proceeds (both of which include $3.8 million of proceeds held in a Section 1031 exchange escrow account), resulting in net gains of an insignificant amount$6.1 million and $0.96.2 million, respectively. During the three and ninesix months ended SeptemberJune 30, 2021,2022, we sold 14five and 23nine properties for $4.92.3 million and $8.83.8 million in proceeds, resulting in net gains of $0.40.5 million and $1.50.9 million, respectively.
See Note 5 for information regarding impairment charges primarily recorded upon classifying sites within assets held for sale.
6
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. INVENTORIESINVENTORY
InventoriesInventory consisted of the following (in thousands):
|
| September 30, |
| December 31, |
|
| June 30, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Retail site merchandise |
| $ | 22,809 |
|
| $ | 22,518 |
|
| $ | 27,300 |
|
| $ | 22,654 |
|
Motor fuel |
|
| 24,449 |
|
|
| 23,582 |
|
|
| 24,665 |
|
|
| 24,653 |
|
Inventories |
| $ | 47,258 |
|
| $ | 46,100 |
| ||||||||
Inventory |
| $ | 51,965 |
|
| $ | 47,307 |
|
Note 5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Land |
| $ | 324,697 |
|
| $ | 321,813 |
|
Buildings and site improvements |
|
| 360,649 |
|
|
| 358,335 |
|
Leasehold improvements |
|
| 15,159 |
|
|
| 13,437 |
|
Equipment |
|
| 331,834 |
|
|
| 314,393 |
|
Construction in progress |
|
| 5,774 |
|
|
| 9,457 |
|
Property and equipment, at cost |
|
| 1,038,113 |
|
|
| 1,017,435 |
|
Accumulated depreciation and amortization |
|
| (299,913 | ) |
|
| (261,981 | ) |
Property and equipment, net |
| $ | 738,200 |
|
| $ | 755,454 |
|
|
| June 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Land |
| $ | 324,553 |
|
| $ | 323,882 |
|
Buildings and site improvements |
|
| 361,245 |
|
|
| 360,542 |
|
Leasehold improvements |
|
| 16,000 |
|
|
| 15,312 |
|
Equipment |
|
| 340,986 |
|
|
| 334,324 |
|
Construction in progress |
|
| 2,989 |
|
|
| 6,514 |
|
Property and equipment, at cost |
|
| 1,045,773 |
|
|
| 1,040,574 |
|
Accumulated depreciation and amortization |
|
| (336,674 | ) |
|
| (312,195 | ) |
Property and equipment, net |
| $ | 709,099 |
|
| $ | 728,379 |
|
We recorded impairment charges of $1.60.4 million and $0.5 million during the three months ended June 30, 2023 and 2022 and $0.8 million and $1.2 million during the threesix months ended SeptemberJune 30, 20222023 and 2021 and $2.7 million and $6.4 million during the nine months ended September 30, 2022, and 2021, respectively, included within depreciation, amortization and accretion expenses on the statements of operations. These impairment charges were primarily related to sites initially classified within assets held for sale in connection with our ongoing real estate rationalization effort.
7
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| ||||||||||||
Wholesale fuel supply contracts/rights |
| $ | 208,696 |
|
| $ | (114,684 | ) |
| $ | 94,012 |
|
| $ | 212,194 |
|
| $ | (99,124 | ) |
| $ | 113,070 |
|
| $ | 232,932 |
|
| $ | 130,799 |
|
| $ | 102,133 |
|
| $ | 232,932 |
|
| $ | 120,168 |
|
| $ | 112,764 |
|
Trademarks/licenses |
|
| 2,208 |
|
|
| (1,231 | ) |
|
| 977 |
|
|
| 2,208 |
|
|
| (1,174 | ) |
|
| 1,034 |
|
|
| 1,850 |
|
|
| 710 |
|
|
| 1,140 |
|
|
| 2,208 |
|
|
| 1,250 |
|
|
| 958 |
|
Covenant not to compete |
|
| 450 |
|
|
| (435 | ) |
|
| 15 |
|
|
| 450 |
|
|
| (367 | ) |
|
| 83 |
|
|
| 200 |
|
|
| 23 |
|
|
| 177 |
|
|
| 650 |
|
|
| 453 |
|
|
| 197 |
|
Total intangible assets |
| $ | 211,354 |
|
| $ | (116,350 | ) |
| $ | 95,004 |
|
| $ | 214,852 |
|
| $ | (100,665 | ) |
| $ | 114,187 |
|
| $ | 234,982 |
|
| $ | 131,532 |
|
| $ | 103,450 |
|
| $ | 235,790 |
|
| $ | 121,871 |
|
| $ | 113,919 |
|
See Note 2 regarding the purchase accounting for the final three sites acquired from 7-Eleven during the first quarter.
Note 7. GOODWILL
Changes in goodwill during 2022 were as follows (in thousands):
|
| Wholesale |
|
| Retail |
|
| Consolidated |
| |||
Balance at December 31, 2021 |
| $ | 82,328 |
|
| $ | 18,136 |
|
| $ | 100,464 |
|
Adjustments to purchase accounting |
|
| (738 | ) |
|
| (317 | ) |
|
| (1,055 | ) |
Balance at September 30, 2022 |
| $ | 81,590 |
|
| $ | 17,819 |
|
| $ | 99,409 |
|
See Note 2 regarding the purchase accounting for the final three sites acquired from 7-Eleven during the first quarter.
Note 8. DEBT
Our balances for long-term debt and finance lease obligations were as follows (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
CAPL Credit Facility |
| $ | 593,360 |
|
| $ | 630,575 |
|
JKM Credit Facility |
|
| 158,980 |
|
|
| 182,460 |
|
Finance lease obligations |
|
| 14,779 |
|
|
| 16,809 |
|
Total debt and finance lease obligations |
|
| 767,119 |
|
|
| 829,844 |
|
Current portion |
|
| 8,376 |
|
|
| 10,939 |
|
Noncurrent portion |
|
| 758,743 |
|
|
| 818,905 |
|
Deferred financing costs, net |
|
| 6,550 |
|
|
| 8,270 |
|
Noncurrent portion, net of deferred financing costs |
| $ | 752,193 |
|
| $ | 810,635 |
|
|
| June 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
CAPL Credit Facility |
| $ | 761,491 |
|
| $ | 606,137 |
|
JKM Credit Facility |
|
| — |
|
|
| 158,980 |
|
Finance lease obligations |
|
| 12,537 |
|
|
| 13,954 |
|
Total debt and finance lease obligations |
|
| 774,028 |
|
|
| 779,071 |
|
Current portion |
|
| 2,985 |
|
|
| 11,151 |
|
Noncurrent portion |
|
| 771,043 |
|
|
| 767,920 |
|
Deferred financing costs, net |
|
| 10,979 |
|
|
| 6,282 |
|
Noncurrent portion, net of deferred financing costs |
| $ | 760,064 |
|
| $ | 761,638 |
|
87
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
See Note 13 for information regarding the issuance of preferred membership interests during the first quarter of 2022, the proceeds of which were used to pay off borrowings under the Term Loan Facility.
As of SeptemberJune 30, 2022,2023, future principal payments on debt and future minimum rental payments on finance lease obligations were as follows (in thousands):
|
| Debt |
|
| Finance Lease Obligations |
|
| Total |
| |||
Remaining in 2023 |
|
| — |
|
|
| 1,665 |
|
|
| 1,665 |
|
2024 |
|
| — |
|
|
| 3,396 |
|
|
| 3,396 |
|
2025 |
|
| — |
|
|
| 3,495 |
|
|
| 3,495 |
|
2026 |
|
| — |
|
|
| 3,596 |
|
|
| 3,596 |
|
2027 |
|
| — |
|
|
| 1,211 |
|
|
| 1,211 |
|
2028 |
|
| 761,491 |
|
|
| — |
|
|
| 761,491 |
|
Total future payments |
|
| 761,491 |
|
|
| 13,363 |
|
|
| 774,854 |
|
Less impact of discounting |
|
| — |
|
|
| 826 |
|
|
| 826 |
|
|
|
| 761,491 |
|
|
| 12,537 |
|
|
| 774,028 |
|
Current portion |
|
| — |
|
|
| 2,985 |
|
|
| 2,985 |
|
Long-term portion |
| $ | 761,491 |
|
| $ | 9,552 |
|
| $ | 771,043 |
|
|
| Debt |
|
| Finance Lease Obligations |
|
| Total |
| |||
Remaining in 2022 |
| $ | — |
|
| $ | 816 |
|
| $ | 816 |
|
2023 |
|
| 8,261 |
|
|
| 3,328 |
|
|
| 11,589 |
|
2024 |
|
| 604,375 |
|
|
| 3,427 |
|
|
| 607,802 |
|
2025 |
|
| 11,015 |
|
|
| 3,527 |
|
|
| 14,542 |
|
2026 |
|
| 128,689 |
|
|
| 3,629 |
|
|
| 132,318 |
|
2027 |
|
| — |
|
|
| 1,221 |
|
|
| 1,221 |
|
Total future payments |
|
| 752,340 |
|
|
| 15,948 |
|
|
| 768,288 |
|
Less interest component |
|
| — |
|
|
| 1,169 |
|
|
| 1,169 |
|
|
|
| 752,340 |
|
|
| 14,779 |
|
|
| 767,119 |
|
Current portion |
|
| 5,507 |
|
|
| 2,869 |
|
|
| 8,376 |
|
Long-term portion |
| $ | 746,833 |
|
| $ | 11,910 |
|
| $ | 758,743 |
|
On March 31, 2023, the Partnership and its subsidiary, LGWS (together with the Partnership, the “Borrowers”), amended and restated the CAPL Credit Facility
OurFacility. As amended, the CAPL Credit Facility isprovides for an increase of the senior secured revolving credit facility from $750 million to $925 million and extends the maturity date from April 1, 2024 to March 31, 2028. The credit facility can be increased from time to time upon the Partnership’s written request, subject to certain conditions, up to an additional $350 million. The aggregate amount of the outstanding loans and letters of credit under the CAPL Credit Facility cannot exceed the combined revolving commitments then in effect. Certain subsidiaries of the Borrowers are guarantors ("Guarantors") of all of the obligations under the CAPL Credit Facility. All obligations under the CAPL Credit Facility are secured by substantially all of ourthe Partnership’s assets including our equity interest in Holdings, other thanand substantially all of the assets of unrestricted subsidiaries designatedthe Guarantors.
Borrowings under the credit facility bear interest, at the Partnership’s option, at (1) a rate equal to the secured overnight financing rate (“SOFR”), for interest periods of one, three or six months, plus a margin ranging from 1.75% to 2.75% per annum depending on the Partnership’s Consolidated Leverage Ratio (as defined in the CAPL Credit Facility) plus a customary credit spread adjustment or (2) (a) an alternative base rate equal to the greatest of (i) the federal funds rate plus 0.5% per annum, (ii) SOFR for one month interest periods plus 1.00% per annum or (iii) the rate of interest established by the Agent, from time to time, as suchits prime rate, plus (b) a margin ranging from 0.75% to 1.75% per annum depending on the Partnership’s Consolidated Leverage Ratio. In addition, the Partnership incurs a commitment fee based on the unused portion of the credit facility at a rate ranging from 0.25% to 0.45% per annum depending on the Partnership’s Consolidated Leverage Ratio. Until the Partnership delivers a compliance certificate for the fiscal quarter ending June 30, 2023, the applicable margin for SOFR and alternative base rate loans is 2.25% and 1.25%, respectively, and the commitment fee rate is 0.35%.
The Partnership also has the right to borrow swingline loans under the CAPL Credit Facility. Holdings and its subsidiaries are unrestricted subsidiariesFacility in an amount up to $35.0 million. Swingline loans bear interest at the base rate plus the applicable alternative base rate margin.
Letters of credit may be issued under the CAPL Credit Facility up to an aggregate amount of $65.0 million. Letters of credit are subject to a 0.125% fronting fee and other customary administrative charges. Letters of credit accrue a fee at a rate based on the applicable margin of SOFR loans.
The CAPL Credit Facility also contains certain financial covenants. The Partnership is required to maintain a Consolidated Leverage Ratio (as defined in the CAPL Credit Facility) of (i) for each fiscal quarter ending March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023, not greater than 5.25 to 1.00, (ii) for each fiscal quarter ending March 31, 2024, June 30, 2024 and September 30, 2024, not greater than 5.00 to 1.00, and (iii) for each fiscal quarter ending December 31, 2024 and thereafter, not greater than 4.75 to 1.00. For the quarter during a Specified Acquisition Period (as defined in the CAPL Credit Facility), such threshold will be increased by increasing the numerator thereof by 0.5, but such numerator may not exceed 5.25 to 1.00. Upon the occurrence of a Qualified Note Offering (as defined in the CAPL Credit Facility), the Consolidated Leverage Ratio threshold when not in a Specified Acquisition Period is increased to 5.25 to 1.00, while the Specified Acquisition Period threshold is 5.50 to 1.00. Upon the occurrence of a Qualified Note Offering, the Partnership is also required to maintain a Consolidated Senior Secured Leverage Ratio (as defined in the CAPL Credit Facility) for the most recently completed four fiscal quarter period of not greater than 3.75 to 1.00. Such threshold is increased to 4.00 to 1.00 for the quarter during a Specified Acquisition Period. The Partnership is also required to maintain a Consolidated Interest Coverage Ratio (as defined in the CAPL Credit Facility) of at least 2.50 to 1.00.
8
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The incremental borrowings at the closing of the amended and restated CAPL Credit Facility were used to repay outstanding borrowings under the JKM Credit Facility, which was terminated on March 31, 2023, and to pay fees and expenses in connection with the CAPL Credit Facility and the termination of the JKM Credit Facility.
The CAPL Credit Facility prohibits the Partnership from making cash distributions to its unitholders if any event of default occurs or would result from the distribution. In addition, the CAPL Credit Facility contains various covenants that may limit, among other things, the Partnership’s ability to:
If an event of default exists under the CAPL Credit Facility, the lenders will be able to accelerate the maturity of the CAPL Credit Facility and exercise other rights and remedies. Events of default include, among others, the following:
Taking the interest rate swap contracts described in Note 98 into account, our effective interest rate on our CAPL Credit Facility at SeptemberJune 30, 20222023 was 3.95.1% (our applicable margin was 2.25% as of SeptemberJune 30, 2022)2023). See Note 8 for information regarding additional interest rate swap contracts entered into in April 2023.
Letters of credit outstanding at SeptemberJune 30, 20222023 and December 31, 20212022 totaled $3.84.5 million and $4.04.6 million, respectively.
As of SeptemberJune 30, 2022,2023, we were in compliance with our financial covenants under the CAPL Credit Facility. The amount of availability under the CAPL Credit Facility at SeptemberJune 30, 2022,2023, after taking into consideration debt covenant restrictions, was $152.9159.0 million.
JKMIn connection with amending the CAPL Credit Facility
The obligations under and terminating the JKM Credit Facility, are guaranteed by Holdings and its subsidiaries (other than CAPL JKM Partners) and secured by a lien on substantially allthe Partnership wrote off $1.1 million of deferred financing costs in the assetsfirst quarter of Holdings and its subsidiaries (including CAPL JKM Partners). The obligations under the JKM Credit Facility are nonrecourse to CrossAmerica and its subsidiaries other than Holdings, CAPL JKM Partners and their respective subsidiaries.
The JKM Credit Facility contains customary events of default and covenants, including, among other things, and subject to certain exceptions, covenants that restrict the ability of Holdings and its subsidiaries to create or incur liens on assets, make investments, incur additional indebtedness, merge or consolidate and dispose of assets.
Our borrowings under the JKM Credit Facility had a weighted-average interest rate of 5.2% as of September 30, 2022 (LIBOR plus an applicable margin, which was 2.5% as of September 30, 2022).
Letters of credit outstanding at September 30, 2022 and December 31, 2021 totaled $0.8 million.
As of September 30, 2022, we were in compliance with our financial covenants under the JKM Credit Facility. The amount of availability under the JKM Credit Facility at September 30, 2022, after taking into consideration debt covenant restrictions, was $14.2 million.2023.
9
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9.8. INTEREST RATE SWAP CONTRACTS
TheThrough March 31, 2023, the interest payments on our CAPL Credit Facility and JKM Credit Facility varyvaried based on monthly changes in the one-month LIBOR and changes, if any, in the applicable margins,margin, which areis based on our leverage ratios under each facilityratio as further discussed in Note 8.7. To hedge against interest rate volatility on our variable rate borrowings under the CAPL Credit Facility, on March 26, 2020, we entered into threean interest rate swap contracts in 2020 that mature on April 1, 2024. Onecontract. The interest rate swap contract has a notional amount of $150 million, and a fixed rate of 0.495% and matures on April 1, 2024. The otherOn April 15, 2020, we entered into two additional interest rate swap contracts, each have awith notional amountamounts of $75 million, and a fixed rate of 0.38% and that mature on April 1, 2024.
On April 4, 2023, in connection with amending and restating the CAPL Credit Facility and transitioning from LIBOR to SOFR, we also amended our three existing interest rate swap contracts to convert the reference rate from LIBOR to SOFR. As a result, the fixed rate was reduced from 0.495% to 0.4125% for the one contract and from 0.38% to 0.2975% for the other two contracts. All other critical terms remain the same and so we expect these cash flow hedges to continue to be highly effective. We have applied certain provisions and practical expedients of ASC 848–Reference Rate Reform related to the transition from LIBOR to SOFR achieved with amending and restating the CAPL Credit Facility and with amending our existing interest rate swap contracts.
In April 2023, we entered into four additional interest rate swap contracts as summarized below (in thousands):
Type |
| Notional Amount |
|
| Termination Date |
| Fixed Rate |
| ||
Spot starting |
| $ | 50,000 |
|
| March 30, 2028 |
|
| 3.287 | % |
Spot starting |
|
| 100,000 |
|
| March 31, 2028 |
|
| 3.287 | % |
Spot starting |
|
| 50,000 |
|
| April 8, 2028 |
|
| 3.282 | % |
Forward starting April 1, 2024 |
|
| 100,000 |
|
| April 1, 2028 |
|
| 2.932 | % |
All of theseour interest rate swap contracts have been designated as cash flow hedges and are expected to be highly effective.
The fair value of these interest rate swap contracts for which the current portion is included in other current assets and the noncurrent portion is included in other assets, totaled $17.320.1 million and $3.017.2 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. See Note 1211 for additional information on the fair value of the interest rate swap contracts.
We report the unrealized gains and losses on our interest rate swap contracts designated as highly effective cash flow hedges as a component of other comprehensive income and reclassify such gains and losses into earnings in the same period during which the hedged interest expense is recorded. We recognized a net realized gain (loss) from settlements of the interest rate swap contracts of $1.44.3 million and $($0.3) million for the three months ended SeptemberJune 30, 2023 and 2022 and 2021 and $1.47.4 million and $(an 0.7insignificant) million amount for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
We currently estimate that a gain of $11.615.4 million will be reclassified from AOCIaccumulated other comprehensive income into interest expense during the next 12 months; however, the actual amount that will be reclassified will vary based on changes in interest rates.
Note 10.9. RELATED-PARTY TRANSACTIONS
Wholesale Motor Fuel Sales and Real Estate Rentals
Revenues from TopStar, an entity affiliated with the Topper Group, were $18.613.2 million and $15.722.7 million for the three months ended SeptemberJune 30, 2023 and 2022 and 2021 and $58.424.9 million and $41.439.8 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Accounts receivable from TopStar werewas $0.9 million and $1.30.7 million at SeptemberJune 30, 20222023 and December 31, 2021, respectively.2022.
CrossAmerica leases real estate from the Topper Group. Rent expense under these lease agreements was $2.6 million and $2.3 million for the three months ended SeptemberJune 30, 2023 and 2022 and 2021 and $7.55.2 million and $6.84.8 million for the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively.
10
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Omnibus Agreement
We incurred expenses under the Omnibus Agreement, including costs for store level personnel at our company operated sites, totaling $22.425.5 million and $16.920.5 million for the three months ended SeptemberJune 30, 2023 and 2022 and 2021 and $62.947.6 million and $42.740.6 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Such expenses are included in operating expenses and general and administrative expenses in the statements of operations. Amounts payable to the Topper Group related to expenses incurred by the Topper Group on our behalf in accordance with the Omnibus Agreement totaled $6.76.8 million and $6.1 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
Common Unit Distributions and Other Equity Transactions
We distributed $7.7 million and $7.6 million to the Topper Group related to its ownership of our common units during each of the three months ended SeptemberJune 30, 2023 and 2022 and 2021 and $23.0 million and $27.115.3 million for each of the ninesix months ended SeptemberJune 30, 20222023 and 2021, respectively.2022.
We distributed $2.6 million and $2.6 million to affiliates of John B. Reilly, III related to their ownership of our common units during each of the three months ended SeptemberJune 30, 2023 and 2022 and 2021$5.2 million for each of the six months ended June 30, 2023 and 2022.
We recorded accretion on the preferred membership interests issued in March 2022 to related parties of $0.6 million for the three months ended June 30, 2023 and 2022 and $7.91.2 million and $3.60.6 million for the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively. We paid income tax distributions of $
See Note 13 for information regarding0.1 million related to the issuance of preferred membership interests to related parties.for the three and six months ended June 30, 2023.
10
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maintenance and Environmental Costs
Certain maintenance and environmental remediation activities are performed by an entity affiliated with the Topper Group, as approved by the independent conflicts committee of the Board. We incurred charges with this related party of $0.70.6 million for each of the three months ended June 30, 2023 and 2022 and $1.3 million and $0.80.9 million for the threesix months ended SeptemberJune 30, 20222023 and 2021 and $1.6 million and $1.7 million for the nine months ended September 30, 2022, and 2021, respectively. Accounts payable to this related party amounted to $0.20.4 million and $0.3 million at SeptemberJune 30, 2022.2023 and December 31, 2022, respectively.
Convenience Store Products
We purchase certain convenience store products from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of the Board, as approved by the independent conflicts committee of the Board. Merchandise costs amounted to $6.25.3 million and $5.25.4 million for three months ended SeptemberJune 30, 2023 and 2022 and 2021 and $16.110.1 million and $14.59.9 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Amounts payable to this related party amounted to $1.6 million and $1.51.4 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
Vehicle Lease
In connection with the services rendered under the Omnibus Agreement, we lease certain vehicles from an entity affiliated with the Topper Group, as approved by the independent conflicts committee of the Board. Lease expense was an insignificant amount for the three months ended SeptemberJune 30, 20222023 and 20212022, and $0.1 million and an insignificant amount for each of the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021.respectively.
Principal Executive Offices
Our principal executive offices are in Allentown, Pennsylvania. We lease office space from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of our Board, as approved by the independent conflicts committee of the Board. Rent expense amounted to $0.30.2 million for each of the three months ended SeptemberJune 30, 2023 and 2022 and 2021 and $0.7 million and $0.90.5 million for each of the ninesix months ended SeptemberJune 30, 20222023 and 2021, respectively.2022.
Public Relations and Website Consulting Services
We have engaged a company affiliated with John B. Reilly, III, a member of ourthe Board, for public relations and website consulting services. The cost of these services was insignificant for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
11
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11.10. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
We have minimum volume purchase requirements under certain of our fuel supply agreements with a purchase price at prevailing market rates for wholesale distribution. In the event we fail to purchase the required minimum volume for a given contract year,contractual period, the underlying third party’s exclusive remedies (depending on the magnitude of the failure) are either termination of the supply agreement and/or a financial penalty per gallon based on the volume shortfall for the given year. We did not incur any significant penalties during the ninesix months ended SeptemberJune 30, 20222023 or 2021.2022.
11
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation Matters
We are from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damages, environmental damages, employment-related claims and damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record an accrual when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In addition, we disclose matters for which management believes a material loss is at least reasonably possible. We believe that it is not reasonably possible that these proceedings, separately or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations or cash flows. In all instances, management has assessed the matter based on current information and made a judgment concerning its potential outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought and the probability of success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation.
Environmental Matters
We currently own or lease retail sites where refined petroleum products are being or have been handled. These retail sites and the refined petroleum products handled thereon may be subject to federal and state environmental laws and regulations. Under such laws and regulations, we could be required to remove or remediate containerized hazardous liquids or associated generated wastes (including wastes disposed of or abandoned by prior owners or operators), to remediate contaminated property arising from the release of liquids or wastes into the environment, including contaminated groundwater, or to implement best management practices to prevent future contamination.
We maintain insurance of various types with varying levels of coverage that is considered adequate under the circumstances to cover operations and properties. The insurance policies are subject to deductibles that are considered reasonable and not excessive. In addition, we have entered into indemnification and escrow agreements with various sellers in conjunction with acquisitions.several of their respective acquisitions, as further described below. Financial responsibility for environmental remediation is negotiated in connection with each acquisition transaction. In each case, an assessment is made of potential environmental liability exposure based on available information. Based on that assessment and relevant economic and risk factors, a determination is made whether to, and the extent to which we will, assume liability for existing environmental conditions.
Environmental liabilities recorded on the balance sheet within accrued expenses and other current liabilities and other long-term liabilities totaled $7.87.2 million and $5.47.5 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. Indemnification assets related to third-party escrow funds, state funds or insurance recorded on the balance sheet within other current assets and other noncurrent assets totaled $5.64.9 million and $3.25.2 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. State funds represent probable state reimbursement amounts. Reimbursement will depend upon the continued maintenance and solvency of the state. Insurance coverage represents amounts deemed probable of reimbursement under insurance policies.
The estimates used in these reserves are based on all known facts at the time and an assessment of the ultimate remedial action outcomes. We will adjust loss accruals as further information becomes available or circumstances change. Among the many uncertainties that impact the estimates are the necessary regulatory approvals for, and potential modifications of, remediation plans, the amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment and the possibility of existing legal claims giving rise to additional claims.
12
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Environmental liabilities related to the sites contributed to the Partnership in connection with our IPO have not been assigned to us and are still the responsibility of the Predecessor Entity. The Predecessor Entity indemnified us for any costs or expenses that we incur for environmental liabilities and third-party claims, regardless of when a claim is made, that are based on environmental conditions in existence prior to the closing of the IPO for contributed sites. As such, these environmental liabilities and indemnification assets are not recorded on the balance sheet of the Partnership.
Similarly, we have generally been indemnified with respect to known contamination at sites acquired from third parties, including our acquisition of certain assets from 7-Eleven.parties. As such, these environmental liabilities and indemnification assets are also not recorded on the balance sheet of the Partnership.
12
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12.11. FAIR VALUE MEASUREMENTS
We measure and report certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). U.S. GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation.
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels in 20222023 or 2021.2022.
As further discussed in Note 9,8, we entered into interest rate swap contracts during 2020 and remeasure the fair value of suchinterest rate swap contracts on a recurring basis each balance sheet date. We used an income approach to measure the fair value of these contracts, utilizing a forward LIBOR yield curve for the same period as the future interest rate swap settlements. These fair value measurements are classified as Level 2 measurements.
We have accrued for unvested phantom units and phantom performance units as a liability and adjust that liability on a recurring basis based on the market price of our common units each balance sheet date. These fair value measurements are classified asdeemed Level 1 measurements.
The fair value of our accounts receivable, notes receivable, and accounts payable approximated their carrying values as of SeptemberJune 30, 20222023 and December 31, 20212022 due to the short-term maturity of these instruments. The fair valuesvalue of borrowings under the CAPL Credit Facility and JKM Credit Facility approximated theirits carrying valuesvalue as of SeptemberJune 30, 20222023 and December 31, 20212022 due to the frequency with which interest rates are reset and the consistency of the market spread.
Note 13. PREFERRED MEMBERSHIP INTERESTS
On March 29, 2022, Holdings issued and sold 12,500 newly created Series A Preferred Interests (“Series A Preferred Interests”) to each of (i) Dunne Manning JKM LLC (the “DM Investor”), an entity affiliated with Joseph V. Topper, Jr., and (ii) John B. Reilly, III and a trust affiliated with Mr. Reilly ("the JBR Trust" and together with Mr. Reilly, the “JBR Investor;” and the JBR Investor, together with the DM Investor, the "Investors" and, each, an “Investor”) at a price of $1,000 per Series A Preferred Interest, for an aggregate purchase price of $25 million in cash (the “Preferred Issuance”), in reliance upon an exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The Preferred Issuance was consummated pursuant to an Investment Agreement, entered into as of March 29, 2022 (the “Investment Agreement”), by and among Holdings and each Investor. Following the Preferred Issuance, the Partnership indirectly retains 100% of the common interests of Holdings, and Holdings remains a consolidated subsidiary of the Partnership.
In light of the relationships between the Investors and the Partnership, the Preferred Issuance was reviewed by, and received the approval and recommendation of, the conflicts committee of the Board prior to execution of the Investment Agreement and consummation of the Preferred Issuance.
13
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Preferred Issuance, on March 29, 2022, LGP Operations LLC, a wholly owned subsidiary of the Partnership, each Investor and the Partnership entered into an amended and restated limited liability company agreement of Holdings to, among other things, set forth the rights, preferences, entitlements, restrictions and limitations of the Series A Preferred Interests. The Series A Preferred Interests have an initial liquidation preference of $1,000 per Series A Preferred Interest and are entitled to a preferred return at a rate of 9% per annum on the liquidation preference, compounded quarterly (the “preferred return”). Prior to October 16, 2026, the Series A Preferred Interests will not be entitled to receive distributions, but the preferred return instead will accumulate solely by way of an increase in the liquidation preference of the Series A Preferred Interests. From and after October 16, 2026, the preferred return will be payable in cash, on a quarterly basis. The Series A Preferred Interests are subject to exchange (i) upon a liquidation or deemed liquidation event of Holdings, (ii) upon a change of control of the Partnership, (iii) from and after March 1, 2024, at the option of the Partnership and Holdings, and (iv) on March 31, 2029, if any Series A Preferred Interests remain outstanding on such date (each of (i) through (iv), an “exchange”). Upon an exchange of any Series A Preferred Interests, the holders thereof will surrender each such Series A Preferred Interest in exchange for an amount equal to the then-current liquidation preference of such Series A Preferred Interest plus any preferred return accrued and unpaid with respect to the period from and after October 16, 2026 (the “Exchange Price”). The Exchange Price will be payable in common units of the Partnership or, if any holder of Series A Preferred Interests so elects, in cash. Any common units of the Partnership issued upon any exchange in payment of the Exchange Price will be valued at an amount equal to $23.74 per common unit, which is equal to 115% of the volume weighted average price of a Partnership common unit on the NYSE over the twenty trading-day period ending on March 28, 2022, the trading day immediately prior to the date of the Preferred Issuance.
The net proceeds received by Holdings in its sale of the Series A Preferred Interests were contributed to CAPL JKM Partners, which in turn used such net proceeds to prepay a portion of the outstanding indebtedness under the Term Loan Facility. As a result of this prepayment, CAPL JKM Partners does not need to make a principal payment on the Term Loan Facility until April 1, 2023. See Note 12 for additional information on the Term Loan Facility.
The preferred membership interests are presented in mezzanine equity on the balance sheet and the carrying amount will be accreted to the Exchange Price over time. We recorded accretion of the preferred membership interests of $0.6 million and $1.1 million for the three and nine months ended September 30, 2022.
Note 14.12. INCOME TAXES
As a limited partnership, we are not subject to federal and state income taxes. However, our corporate subsidiaries are subject to income taxes. Income tax attributable to our taxable income (including any dividend income from our corporate subsidiaries), which may differ significantly from income for financial statement purposes, is assessed at the individual limited partner unitholder level. We are subject to a statutory requirement that non-qualifying income, as defined by the Internal Revenue Code, cannot exceed 10% of total gross income for the calendar year. If non-qualifying income exceeds this statutory limit, we would be taxed as a corporation. The non-qualifying income did not exceed the statutory limit in any annual period.
Certain activities that generate non-qualifying income are conducted through our wholly owned taxable corporate subsidiaries. Current and deferred income taxes are recognized on the earnings of these subsidiaries. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates.
We recorded income tax expense (benefit) of $3.82.8 million and $(1.10.1) million for the three months ended SeptemberJune 30, 2023 and 2022 and 2021 and $1.81.1 million and $(1.72.0) million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, as a result of the income generated (losses incurred) by our corporate subsidiaries. The effective tax rate differs from the combined federal and state statutory rate primarily because only LGWS and Joe’s Kwik Marts are subject to income tax.
13
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15.13. NET INCOME PER LIMITED PARTNER UNIT
We compute income per unit using the two-class method under which any excess of distributions declared over net income shall be allocated to the partners based on their respective sharing of income as specified in the Partnership Agreement. Net income per unit applicable to limited partners is computed by dividing the limited partners’ interest in net income by the weighted-average number of outstanding common units.
We applied the if-converted method to the preferred membership interests in accordance with Accounting Standards Update No. 2020-06 for purposes of computing diluted earnings per unit.
14
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation of net income and weighted-average units used in computing basic and diluted net income per limited partner unit for the following periods (in thousands, except unit and per unit amounts):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Distributions paid |
| $ | 19,913 |
|
| $ | 19,894 |
|
| $ | 59,713 |
|
| $ | 59,659 |
|
| $ | 19,925 |
|
| $ | 19,904 |
|
| $ | 39,843 |
|
| $ | 39,800 |
|
Allocation of distributions in excess of net income |
|
| 7,105 |
|
|
| (11,042 | ) |
|
| (14,245 | ) |
|
| (49,985 | ) |
|
| (6,004 | ) |
|
| (6,501 | ) |
|
| (27,502 | ) |
|
| (21,350 | ) |
Limited partners’ interest in net income - basic |
|
| 27,018 |
|
|
| 8,852 |
|
|
| 45,468 |
|
|
| 9,674 |
| ||||||||||||||||
Accretion of preferred membership interests (a) |
|
| 575 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Limited partners' interest in net income - diluted |
| $ | 27,593 |
|
| $ | 8,852 |
|
| $ | 45,468 |
|
| $ | 9,674 |
| ||||||||||||||||
Limited partners’ interest in net income - basic and diluted |
| $ | 13,921 |
|
| $ | 13,403 |
|
| $ | 12,341 |
|
| $ | 18,450 |
| ||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Weighted-average common units outstanding - basic |
|
| 37,925,082 |
|
|
| 37,887,493 |
|
|
| 37,912,737 |
|
|
| 37,877,273 |
|
|
| 37,952,950 |
|
|
| 37,912,710 |
|
|
| 37,946,676 |
|
|
| 37,906,463 |
|
Adjustment for phantom and phantom performance units |
|
| 35,809 |
|
|
| 19,306 |
|
|
| 37,625 |
|
|
| 20,763 |
| ||||||||||||||||
Adjustment for preferred membership interests (a) |
|
| 1,076,769 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Adjustment for phantom and phantom performance units (a) |
|
| 197,286 |
|
|
| 44,724 |
|
|
| 197,021 |
|
|
| 45,003 |
| ||||||||||||||||
Weighted-average common units outstanding - diluted |
|
| 39,037,660 |
|
|
| 37,906,799 |
|
|
| 37,950,362 |
|
|
| 37,898,036 |
|
|
| 38,150,236 |
|
|
| 37,957,434 |
|
|
| 38,143,697 |
|
|
| 37,951,466 |
|
Net income per common unit - basic |
| $ | 0.71 |
|
| $ | 0.23 |
|
| $ | 1.20 |
|
| $ | 0.26 |
|
| $ | 0.37 |
|
| $ | 0.35 |
|
| $ | 0.33 |
|
| $ | 0.49 |
|
Net income per common unit - diluted |
| $ | 0.71 |
|
| $ | 0.23 |
|
| $ | 1.20 |
|
| $ | 0.26 |
|
| $ | 0.36 |
|
| $ | 0.35 |
|
| $ | 0.32 |
|
| $ | 0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Distributions paid per common unit |
| $ | 0.5250 |
|
| $ | 0.5250 |
|
| $ | 1.5750 |
|
| $ | 1.5750 |
|
| $ | 0.5250 |
|
| $ | 0.5250 |
|
| $ | 1.0500 |
|
| $ | 1.0500 |
|
Distributions declared (with respect to each respective period) |
| $ | 0.5250 |
|
| $ | 0.5250 |
|
| $ | 1.5750 |
|
| $ | 1.5750 |
|
| $ | 0.5250 |
|
| $ | 0.5250 |
|
| $ | 1.0500 |
|
| $ | 1.0500 |
|
antidilutive. For the three and six months ended SeptemberJune 30, 2022,1,076,769 and 553,257 potentially dilutive units related to the preferred membership interests were included in the denominator ofexcluded from the calculation of diluted earnings per unit. Similarly, the accretion of the preferred membership interests was added back in the numerator of the calculation as if the preferred membership interests had been converted to common units at the beginning of the period, in which case no accretionunit because including them would have been recorded.antidilutive.
Distributions
Distribution activity for 20222023 is as follows:
Quarter Ended |
| Record Date |
| Payment Date |
| Cash |
|
| Cash |
| ||
December 31, 2021 |
| February 3, 2022 |
| February 10, 2022 |
| $ | 0.5250 |
|
| $ | 19,896 |
|
March 31, 2022 |
| May 3, 2022 |
| May 11, 2022 |
|
| 0.5250 |
|
|
| 19,904 |
|
June 30, 2022 |
| August 3, 2022 |
| August 10, 2022 |
|
| 0.5250 |
|
|
| 19,913 |
|
September 30, 2022 |
| November 3, 2022 |
| November 10, 2022 |
|
| 0.5250 |
|
|
| 19,913 |
|
Quarter Ended |
| Record Date |
| Payment Date |
| Cash |
|
| Cash |
| ||
December 31, 2022 |
| February 3, 2023 |
| February 10, 2023 |
| $ | 0.5250 |
|
| $ | 19,918 |
|
March 31, 2023 |
| May 3, 2023 |
| May 10, 2023 |
| $ | 0.5250 |
|
| $ | 19,925 |
|
June 30, 2023 |
| August 4, 2023 |
| August 11, 2023 |
| $ | 0.5250 |
|
| $ | 19,935 |
|
The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy at any time. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will continue to pay distributions in the future.
15
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16.14. SEGMENT REPORTING
We conduct our business in two segments: 1) the wholesale segment and 2) the retail segment.
The wholesale segment includes the wholesale distribution of motor fuel to lessee dealers and independent dealers, commission agents and company operated retail sites.dealers. We have exclusive motor fuel distribution contracts with lessee dealers who lease the property from us. We also have exclusive distribution contracts with independent dealers to distribute motor fuel but do not collect rent from the independent dealers.
14
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The retail segment includes the retail sale of motor fuel at retail sites operated by commission agents and the sale of convenience merchandise items and the retail sale of motor fuel at company operated sites. A commission agent site is a retail site where we retain title to the motor fuel inventory and sell it directly to our end user customers. At commission agent retail sites, we manage motor fuel inventory pricing and retain the gross profit on motor fuel sales, less a commission to the agent who operates the retail site. Similar to our wholesale segment, we also generate revenues through leasing or subleasing real estate in our retail segment.
Unallocated items consist primarily of general and administrative expenses, depreciation, amortization and accretion expense, gains on dispositions and lease terminations, net, other income, interest expense and the elimination of the retail segment’s intersegment cost of revenues from motor fuel sales against the wholesale segment’s intersegment revenues from motor fuel sales. The profit in ending inventory generated by the intersegment motor fuel sales is also eliminated.income tax expense. Total assets by segment are not presented as management does not currently assess performance or allocate resources based on that data.
16During the fourth quarter of 2022, we changed our segment reporting to our chief operating decision maker to simplify the assessment of performance of our segments. Prior to the fourth quarter, the wholesale segment included the wholesale fuel gross profit on intersegment sales by our wholesale segment to our retail segment. Likewise, the wholesale segment included an allocation of operating expenses related to the operation of our sites consistent with the allocation of the overall fuel gross profit.
Starting in the fourth quarter of 2022, the wholesale segment includes only the fuel gross profit on sales to lessee dealers and independent dealers and the retail segment includes the entire fuel gross profit on sales at our company operated and commission agent sites. Likewise, operating expenses are allocated to each segment based on estimates of the level of effort expended on our 1) lessee and independent dealer business in our wholesale segment; and 2) company operated and commission agent site business in our retail segment.
This change simplifies the assessment of performance of our segments and eliminates the intersegment sales inherent in our prior segment reporting.
We have recast the results of our segments for the three and six months ended June 30, 2022 to be consistent with our new segment reporting.
15
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects activity related to our reportable segments (in thousands):
|
| Wholesale |
|
| Retail |
|
| Unallocated |
|
| Consolidated |
|
| Wholesale |
|
| Retail |
|
| Unallocated |
|
| Consolidated |
| ||||||||
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Three Months Ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Revenues from fuel sales to external customers |
| $ | 653,905 |
|
| $ | 518,356 |
|
| $ | — |
|
| $ | 1,172,261 |
|
| $ | 580,935 |
|
| $ | 455,315 |
|
| $ | — |
|
| $ | 1,036,250 |
|
Intersegment revenues from fuel sales |
|
| 398,072 |
|
|
| — |
|
|
| (398,072 | ) |
|
| — |
| ||||||||||||||||
Revenues from food and merchandise sales |
|
| — |
|
|
| 76,136 |
|
|
| — |
|
|
| 76,136 |
|
|
| — |
|
|
| 83,666 |
|
|
| — |
|
|
| 83,666 |
|
Rent income |
|
| 18,134 |
|
|
| 3,126 |
|
|
| — |
|
|
| 21,260 |
|
|
| 17,379 |
|
|
| 3,144 |
|
|
| — |
|
|
| 20,523 |
|
Other revenue |
|
| 1,657 |
|
|
| 3,093 |
|
|
| — |
|
|
| 4,750 |
|
|
| 1,164 |
|
|
| 3,793 |
|
|
| — |
|
|
| 4,957 |
|
Total revenues |
| $ | 1,071,768 |
|
| $ | 600,711 |
|
| $ | (398,072 | ) |
| $ | 1,274,407 |
|
| $ | 599,478 |
|
| $ | 545,918 |
|
| $ | — |
|
| $ | 1,145,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating income (loss) |
| $ | 45,387 |
|
| $ | 20,937 |
|
| $ | (26,685 | ) |
| $ | 39,639 |
|
| $ | 21,775 |
|
| $ | 26,151 |
|
| $ | (20,073 | ) |
| $ | 27,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Three Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Three Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Revenues from fuel sales to external customers |
| $ | 565,022 |
|
| $ | 337,214 |
|
| $ | — |
|
| $ | 902,236 |
|
| $ | 795,924 |
|
| $ | 579,325 |
|
| $ | — |
|
| $ | 1,375,249 |
|
Intersegment revenues from fuel sales |
|
| 260,713 |
|
|
| — |
|
|
| (260,713 | ) |
|
| — |
| ||||||||||||||||
Revenues from food and merchandise sales |
|
| — |
|
|
| 58,283 |
|
|
| — |
|
|
| 58,283 |
|
|
| — |
|
|
| 73,934 |
|
|
| — |
|
|
| 73,934 |
|
Rent income |
|
| 18,441 |
|
|
| 3,057 |
|
|
| — |
|
|
| 21,498 |
|
|
| 17,839 |
|
|
| 3,010 |
|
|
| — |
|
|
| 20,849 |
|
Other revenue |
|
| 795 |
|
|
| 2,310 |
|
|
| — |
|
|
| 3,105 |
|
|
| 1,807 |
|
|
| 3,194 |
|
|
| — |
|
|
| 5,001 |
|
Total revenues |
| $ | 844,971 |
|
| $ | 400,864 |
|
| $ | (260,713 | ) |
| $ | 985,122 |
|
| $ | 815,570 |
|
| $ | 659,463 |
|
| $ | — |
|
| $ | 1,475,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating income (loss) |
| $ | 39,496 |
|
| $ | 2,007 |
|
| $ | (28,915 | ) |
| $ | 12,588 |
|
| $ | 24,158 |
|
| $ | 22,571 |
|
| $ | (25,657 | ) |
| $ | 21,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Six Months Ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Revenues from fuel sales to external customers |
| $ | 2,032,950 |
|
| $ | 1,519,923 |
|
|
| — |
|
| $ | 3,552,873 |
|
| $ | 1,102,860 |
|
| $ | 858,261 |
|
| $ | — |
|
| $ | 1,961,121 |
|
Intersegment revenues from fuel sales |
|
| 1,235,496 |
|
|
| — |
|
|
| (1,235,496 | ) |
|
| — |
| ||||||||||||||||
Revenues from food and merchandise sales |
|
| — |
|
|
| 212,417 |
|
|
| — |
|
|
| 212,417 |
|
|
| — |
|
|
| 148,932 |
|
|
| — |
|
|
| 148,932 |
|
Rent income |
|
| 53,450 |
|
|
| 9,286 |
|
|
| — |
|
|
| 62,736 |
|
|
| 35,335 |
|
|
| 6,508 |
|
|
| — |
|
|
| 41,843 |
|
Other revenue |
|
| 5,250 |
|
|
| 9,375 |
|
|
| — |
|
|
| 14,625 |
|
|
| 2,411 |
|
|
| 7,248 |
|
|
| — |
|
|
| 9,659 |
|
Total revenues |
| $ | 3,327,146 |
|
| $ | 1,751,001 |
|
| $ | (1,235,496 | ) |
| $ | 3,842,651 |
|
| $ | 1,140,606 |
|
| $ | 1,020,949 |
|
| $ | — |
|
| $ | 2,161,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating income (loss) |
| $ | 126,508 |
|
| $ | 25,033 |
|
| $ | (81,111 | ) |
| $ | 70,430 |
|
| $ | 43,444 |
|
| $ | 40,918 |
|
| $ | (47,399 | ) |
| $ | 36,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Six Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Revenues from fuel sales to external customers |
| $ | 1,493,614 |
|
| $ | 794,826 |
|
| $ | — |
|
| $ | 2,288,440 |
|
| $ | 1,379,045 |
|
| $ | 1,001,567 |
|
| $ | — |
|
| $ | 2,380,612 |
|
Intersegment revenues from fuel sales |
|
| 604,043 |
|
|
| — |
|
|
| (604,043 | ) |
|
| — |
| ||||||||||||||||
Revenues from food and merchandise sales |
|
| — |
|
|
| 141,330 |
|
|
| — |
|
|
| 141,330 |
|
|
| — |
|
|
| 136,281 |
|
|
| — |
|
|
| 136,281 |
|
Rent income |
|
| 54,350 |
|
|
| 8,482 |
|
|
| — |
|
|
| 62,832 |
|
|
| 35,316 |
|
|
| 6,160 |
|
|
| — |
|
|
| 41,476 |
|
Other revenue |
|
| 2,658 |
|
|
| 6,480 |
|
|
| — |
|
|
| 9,138 |
|
|
| 3,593 |
|
|
| 6,282 |
|
|
| — |
|
|
| 9,875 |
|
Total revenues |
| $ | 2,154,665 |
|
| $ | 951,118 |
|
| $ | (604,043 | ) |
| $ | 2,501,740 |
|
| $ | 1,417,954 |
|
| $ | 1,150,290 |
|
| $ | — |
|
| $ | 2,568,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating income (loss) |
| $ | 97,645 |
|
| $ | 3,253 |
|
| $ | (81,012 | ) |
| $ | 19,886 |
|
| $ | 45,751 |
|
| $ | 37,699 |
|
| $ | (52,659 | ) |
| $ | 30,791 |
|
Receivables relating to the revenue streams above are as follows (in thousands):
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Receivables from fuel and merchandise sales |
| $ | 33,086 |
|
| $ | 27,932 |
|
| $ | 32,683 |
|
| $ | 28,959 |
|
Receivables for rent and other lease-related charges |
|
| 1,338 |
|
|
| 6,548 |
|
|
| 2,719 |
|
|
| 2,609 |
|
Total accounts receivable |
| $ | 34,424 |
|
| $ | 34,480 |
|
| $ | 35,402 |
|
| $ | 31,568 |
|
Performance obligations are satisfied as fuel is delivered to the customer and as merchandise is sold to the consumer. Many of our fuel contracts with our customers include minimum purchase volumes measured on a monthly basis, although revenue from such revenueshortfalls is not material. Receivables from fuel are recognized on a per-gallon rate and are generally collected within 10 days of delivery.
17
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The balance of unamortized costs incurred to obtain certain contracts with customers was $11.110.8 million and $11.010.9 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. Amortization of such costs is recorded against operating revenues and amounted to $0.5 million and $0.4 million for the three months ended SeptemberJune 30, 2023 and 2022 and 2021 and $1.3 million and $1.10.9 million for each of the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively.
16
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Receivables from rent and other lease-related charges are generally collected at the beginning of the month.
Note 17.15. SUPPLEMENTAL CASH FLOW INFORMATION
In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in operating assets and liabilities as follows (in thousands):
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Decrease (increase): |
|
|
|
|
|
| ||
Accounts receivable |
| $ | (1,844 | ) |
| $ | (11,008 | ) |
Accounts receivable from related parties |
|
| 286 |
|
|
| 95 |
|
Inventories |
|
| (891 | ) |
|
| (4,667 | ) |
Other current assets |
|
| 3,066 |
|
|
| (4,965 | ) |
Other assets |
|
| (1,785 | ) |
|
| (1,986 | ) |
Increase (decrease): |
|
|
|
|
|
| ||
Accounts payable |
|
| 12,528 |
|
|
| 21,271 |
|
Accounts payable to related parties |
|
| 739 |
|
|
| 3,654 |
|
Motor fuel and sales taxes payable |
|
| (1,805 | ) |
|
| 3,498 |
|
Accrued expenses and other current liabilities |
|
| 1,654 |
|
|
| 1,203 |
|
Other long-term liabilities |
|
| 2,640 |
|
|
| 2,992 |
|
Changes in operating assets and liabilities, net of acquisitions |
| $ | 14,588 |
|
| $ | 10,087 |
|
|
| Six Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
(Increase) decrease: |
|
|
|
|
|
| ||
Accounts receivable |
| $ | (3,554 | ) |
| $ | (15,125 | ) |
Accounts receivable from related parties |
|
| 75 |
|
|
| (45 | ) |
Inventories |
|
| (4,658 | ) |
|
| (10,403 | ) |
Other current assets |
|
| (1,103 | ) |
|
| 963 |
|
Other assets |
|
| (2 | ) |
|
| (868 | ) |
Increase (decrease): |
|
|
|
|
|
| ||
Accounts payable |
|
| (350 | ) |
|
| 20,178 |
|
Accounts payable to related parties |
|
| 975 |
|
|
| (30 | ) |
Accrued expenses and other current liabilities |
|
| 1,790 |
|
|
| (112 | ) |
Motor fuel and sales taxes payable |
|
| 546 |
|
|
| (1,260 | ) |
Other long-term liabilities |
|
| 1,735 |
|
|
| 2,276 |
|
Changes in operating assets and liabilities, net of acquisitions |
| $ | (4,546 | ) |
| $ | (4,426 | ) |
The above changes in operating assets and liabilities may differ from changes between amounts reflected in the applicable balance sheets for the respective periods due to acquisitions.
Supplemental disclosure of cash flow information (in thousands):
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash paid for interest |
| $ | 20,092 |
|
| $ | 10,876 |
|
Cash paid (refunded) for taxes, net |
|
| (3,934 | ) |
|
| 941 |
|
|
| Six Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash paid for interest |
| $ | 19,920 |
|
| $ | 12,491 |
|
Cash paid (refunded) for income taxes, net |
|
| 1,619 |
|
|
| (2 | ) |
Supplemental schedule of non-cash investing and financing activities (in thousands):
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Accrued capital expenditures |
| $ | 1,304 |
|
| $ | 3,386 |
|
| $ | 1,485 |
|
| $ | 1,226 |
|
Lease liabilities arising from obtaining right-of-use assets |
|
| 12,602 |
|
|
| 22,358 |
|
|
| 5,790 |
|
|
| 9,182 |
|
Accretion of preferred membership interests |
|
| 1,216 |
|
|
| 563 |
|
1817
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, credit ratings, distribution growth, potential growth opportunities, potential operating performance improvements, potential improvements in return on capital employed, the effects of competition and the effects of future legislation or regulations. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “guidance,” “outlook,” “effort,” “target” and similar expressions. Such statements are based on our current plans and expectations and involve risks and uncertainties that could potentially affect actual results. These forward-looking statements include, among other things, statements regarding:
In general, we based the forward-looking statements included in this report on our current expectations, estimates and projections about our company and the industry in which we operate. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties we cannot predict. We anticipate that subsequent events and market developments will cause our estimates to change. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. Any differences could result from a variety of factors, including the following:
1918
You should consider the risks and uncertainties described above and elsewhere in this report as well as those set forth in the section entitled “Risk Factors” in our Form 10-K in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that anticipated results or events reflected in the forward-looking statements will be achieved or will occur. The forward-looking statements included in this report are made as of the date of this report. We undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events after the date of this report, except as required by law.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this report, and the MD&A section and the consolidated financial statements and accompanying notes to those financial statements in our Form 10-K. Our Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations.
MD&A is organized as follows:
19
Recent Developments
Amendment and Restatement of CAPL Credit Facility
On March 31, 2023, the Partnership and its subsidiary, LGWS (together with the Partnership, the “Borrowers”), amended and restated the CAPL Credit Facility. As amended, the CAPL Credit Facility provides for an increase of the senior secured revolving credit facility from $750 million to $925 million and extends the maturity date from April 1, 2024 to March 31, 2028. The credit facility can be increased from time to time upon the Partnership’s written request, subject to certain conditions, up to an additional $350 million. The aggregate amount of the outstanding loans and letters of credit under the CAPL Credit Facility cannot exceed the combined revolving commitments then in effect. Certain subsidiaries of the Borrowers are guarantors ("Guarantors") of all of the obligations under the CAPL Credit Facility. All obligations under the CAPL Credit Facility are secured by substantially all of the Partnership’s assets and substantially all of the assets of the Guarantors.
Borrowings under the credit facility bear interest, at the Partnership’s option, at (1) a rate equal to the secured overnight financing rate (“SOFR”), for interest periods of one, three or six months, plus a margin ranging from 1.75% to 2.75% per annum depending on the Partnership’s Consolidated Leverage Ratio (as defined in the CAPL Credit Facility) plus a customary credit spread adjustment or (2) (a) an alternative base rate equal to the greatest of (i) the federal funds rate plus 0.5% per annum, (ii) SOFR for one month interest periods plus 1.00% per annum or (iii) the rate of interest established by the Agent, from time to time, as its prime rate, plus (b) a margin ranging from 0.75% to 1.75% per annum depending on the Partnership’s Consolidated Leverage Ratio. In addition, the Partnership incurs a commitment fee based on the unused portion of the credit facility at a rate ranging from 0.25% to 0.45% per annum depending on the Partnership’s Consolidated Leverage Ratio. Until the Partnership delivers a compliance certificate for the fiscal quarter ending June 30, 2023, the applicable margin for SOFR and alternative base rate loans is 2.25% and 1.25%, respectively, and the commitment fee rate is 0.35%.
The Partnership also has the right to borrow swingline loans under the CAPL Credit Facility in an amount up to $35.0 million. Swingline loans bear interest at the base rate plus the applicable alternative base rate margin.
Letters of credit may be issued under the CAPL Credit Facility up to an aggregate amount of $65.0 million. Letters of credit are subject to a 0.125% fronting fee and other customary administrative charges. Letters of credit accrue a fee at a rate based on the applicable margin of SOFR loans.
The CAPL Credit Facility also contains certain financial covenants. The Partnership is required to maintain a Consolidated Leverage Ratio (as defined in the CAPL Credit Facility) of (i) for each fiscal quarter ending March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023, not greater than 5.25 to 1.00, (ii) for each fiscal quarter ending March 31, 2024, June 30, 2024 and September 30, 2024, not greater than 5.00 to 1.00, and (iii) for each fiscal quarter ending December 31, 2024 and thereafter, not greater than 4.75 to 1.00. For the quarter during a Specified Acquisition Period (as defined in the CAPL Credit Facility), such threshold will be increased by increasing the numerator thereof by 0.5, but such numerator may not exceed 5.25 to 1.00. Upon the occurrence of a Qualified Note Offering (as defined in the CAPL Credit Facility), the Consolidated Leverage Ratio threshold when not in a Specified Acquisition Period is increased to 5.25 to 1.00, while the Specified Acquisition Period threshold is 5.50 to 1.00. Upon the occurrence of a Qualified Note Offering, the Partnership is also required to maintain a Consolidated Senior Secured Leverage Ratio (as defined in the CAPL Credit Facility) for the most recently completed four fiscal quarter period of not greater than 3.75 to 1.00. Such threshold is increased to 4.00 to 1.00 for the quarter during a Specified Acquisition Period. The Partnership is also required to maintain a Consolidated Interest Coverage Ratio (as defined in the CAPL Credit Facility) of at least 2.50 to 1.00.
The incremental borrowings at the closing of the amended and restated CAPL Credit Facility were used to repay outstanding borrowings under the JKM Credit Facility, which was terminated on March 31, 2023, and to pay fees and expenses in connection with the CAPL Credit Facility and the termination of the JKM Credit Facility.
The CAPL Credit Facility prohibits the Partnership from making cash distributions to its unitholders if any event of default occurs or would result from the distribution. In addition, the CAPL Credit Facility contains various covenants that may limit, among other things, the Partnership’s ability to:
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Recent DevelopmentsIf an event of default exists under the CAPL Credit Facility, the lenders will be able to accelerate the maturity of the CAPL Credit Facility and exercise other rights and remedies. Events of default include, among others, the following:
In connection with amending the CAPL Credit Facility and terminating the JKM Credit Facility, the Partnership wrote off $1.1 million of deferred financing costs in the first quarter of 2023.
See Note 7 to the financial statements for additional information regarding the CAPL Credit Facility and the termination of the JKM Credit Facility.
Additional Interest Rate Swap Contracts
In April 2023, we entered into four additional interest rate swap contracts. Three of the interest rate swap contracts are spot-start contracts with a total notional amount of $200 million and hedge variable interest rate payments for the five-year term of the CAPL Credit Facility. One of the interest rate swap contracts has a notional amount of $100 million and is a forward-starting interest rate swap contract that hedges variable interest rate payments from the date the existing interest rate swap contracts terminate through the remaining four years of the CAPL Credit Facility. All of these interest rate swap contracts have been designated as cash flow hedges and are expected to be highly effective.
See Note 8 to the financial statements for additional information regarding these additional interest rate swap contracts.
Acquisition of Assets from Community Service Stations, Inc.CSS
On August 24,November 9, 2022, we entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Community Service Stations, Inc., pursuant to which we have agreed to purchase certainclosed on the acquisition of assets from Community Service Stations, Inc.CSS for a purchase price of $27.5 million plus working capital. The assets consistconsisted of wholesale fuel supply contracts to 3938 dealer owned locations, 3435 sub-wholesaler accounts and two commission locations (1 fee based and 1 lease).
The acquisition is subject to customary conditions to closing. We expect the transaction to close during the fourth quarter of 2022. It is anticipated that the acquisition will be financed with cash on hand and/or undrawn capacity under the CAPL Credit Facility.
Acquisition of Assets from 7-Eleven
In February 2022, we closed on the final three properties of our 106-site acquisition from 7-Eleven for a purchase price of $3.6 million (including inventory and working capital), of which $1.8 million will be paid on or prior to February 8, 2027.
We funded these transactions primarilythis acquisition through borrowings on the JKM Credit Facility, undrawn capacity under our CAPL Credit Facility and cash on hand.
See Note 2 to the financial statements for additional information regarding this acquisition.
Issuance of Preferred Membership Interests
On March 29, 2022, Holdings issued and sold 12,500 newly created Series A Preferred Interests to each of (i) Dunne Manning JKM LLC (the “DM Investor”), an entity affiliated with Joseph V. Topper, Jr., and (ii) John B. Reilly, III and a trust affiliated with Mr. Reilly ("the JBR Trust" and together with Mr. Reilly, the “JBR Investor;” and the JBR Investor, together with the DM Investor, the "Investors" and, each, an “Investor”) at a price of $1,000 per Series A Preferred Interest, for an aggregate purchase price of $25 million in cash (the “Preferred Issuance”), in reliance upon an exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The Preferred Issuance was consummated pursuant to an Investment Agreement, entered into as of March 29, 2022 (the “Investment Agreement”), by and among Holdings and each Investor. Following the Preferred Issuance, the Partnership indirectly retains 100% of the common interests of Holdings, and Holdings remains a consolidated subsidiary of the Partnership.
In light of the relationships between the Investors and the Partnership, the Preferred Issuance was reviewed by, and received the approval and recommendation of, the conflicts committee of the Board prior to execution of the Investment Agreement and consummation of the Preferred Issuance.
In connection with the Preferred Issuance, on March 29, 2022, LGP Operations LLC, a wholly owned subsidiary of the Partnership, each Investor and the Partnership entered into an amended and restated limited liability company agreement of Holdings to, among other things, set forth the rights, preferences, entitlements, restrictions and limitations of the Series A Preferred Interests. The Series A Preferred Interests have an initial liquidation preference of $1,000 per Series A Preferred Interest and are entitled to a preferred return at a rate of 9% per annum on the liquidation preference, compounded quarterly (the “preferred return”). Prior to October 16, 2026, the Series A Preferred Interests will not be entitled to receive distributions, but the preferred return instead will accumulate solely by way of an increase in the liquidation preference of the Series A Preferred Interests. From and after October 16, 2026, the preferred return will be payable in cash, on a quarterly basis. The Series A Preferred Interests are subject to exchange (i) upon a liquidation or deemed liquidation event of Holdings, (ii) upon a change of control of the Partnership, (iii) from and after March 1, 2024, at the option of the Partnership and Holdings, and (iv) on March 31, 2029, if any Series A Preferred Interests remain outstanding on such date (each of (i) through (iv), an “exchange”). Upon an exchange of any Series A Preferred Interests, the holders thereof will surrender each such Series A Preferred Interest in exchange for an amount equal to the then-current liquidation preference of such Series A Preferred Interest plus any preferred return accrued and unpaid with respect to the period from and after October 16, 2026 (the “Exchange Price”). The Exchange Price will be payable in common units of the Partnership or, if any holder of Series A Preferred Interests so elects, in cash. Any common units of the Partnership issued upon any exchange in payment of the Exchange Price will be valued at an amount equal to $23.74 per common unit, which is equal to 115% of the volume weighted average price of a Partnership common unit on the NYSE over the twenty trading-day period ending on March 28, 2022, the trading day immediately prior to the date of the Preferred Issuance.
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The net proceeds received by Holdings in its sale of the Series A Preferred Interests were contributed to CAPL JKM Partners, which in turn used such proceeds to prepay a portion of the outstanding indebtedness under the Term Loan Facility. As a result of this prepayment, CAPL JKM Partners does not need to make a principal payment on the Term Loan Facility until April 1, 2023.
See Note 13 to the financial statements for additional information on the preferred membership interests.
COVID-19 Pandemic
During the first quarter of 2020, an outbreak of a novel strain of coronavirus spread worldwide, including to the U.S., posing public health risks that reached pandemic proportions. We experienced a sharp decrease in fuel volume in mid-to-late March 2020. Although the COVID Pandemic has not significantly impacted our results in 2022, fuel volume was recovering throughout 2021, which impacts the comparability of our results between periods.
Significant Factors Affecting our Profitability
The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit
Wholesale segment
The prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations. For approximately 61%60% of gallons sold, to our customers, we receive a per gallon rate equal to the posted rack price, less any applicable discounts, plus transportation costs, taxes and a fixed rate per gallon of motor fuel. The remaining gallons are primarilyeither retail sales or wholesale DTW priced contracts including intersegment sales to the retail segment. These contractsthat provide for variable, market-based pricing.
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Regarding our supplier relationships, a majoritymaterial amount of our total gallons purchased are subject to terms discounts. The dollar value of these discounts varies with changes in motor fuel prices. Therefore, in periods of lower wholesale motor fuel prices, our gross profit is negatively affected, and, in periods of higher wholesale motor fuel prices, our gross profit is positively affected (as it relates to these discounts).
Retail segment
WeIn our retail business, we attempt to pass along wholesale motor fuel price changes to our retail customers through “at the pump” retail price changes; however, market conditions do not always allow us to do so immediately. The timing of any related increase or decrease in “at the pump” retail prices is affected by competitive conditions in each geographic market in which we operate. As such, the prices we charge our customers for motor fuel and the gross profit we receive on our motor fuel sales can increase or decrease significantly over short periods of time.
Changes in our average motor fuel selling price per gallon and gross margin are directly related to the changes in crude oil and wholesale motor fuel prices. Variations in our reported revenues and cost of sales are, therefore, primarily related to the price of crude oil and wholesale motor fuel prices and generally not as a result of changes in motor fuel sales volumes, unless otherwise indicated and discussed below.
Seasonality Effects on Volumes
Our business is subject to seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer months) and lowest during the winter months in the first and fourth quarters.
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Impact of Inflation
Inflation affects our financial performance by increasing certain components of cost of goods sold, such as fuel, merchandise, and credit card fees. Inflation also affects certain operating expenses, such as labor costs, certain leases, and general and administrative expenses. While our wholesale segment benefits from higher terms discounts as a result of higher fuel costs, inflation could and recently has negatively impacted our cost of goods sold and operating expenses. Although we have historically been able to pass on increased costs through price increases, there can be no assurance that we will be able to do so in the future.
Impact of Interest Rates
Recent increases in interest rates have increased our interest expense as further described below. See "Recent Developments–Additional Interest Rate Swap Contracts" for information regarding additional interest rate swap contracts we entered into in April 2023.
Acquisition and Financing Activity
Our results of operations and financial condition are also impacted by our acquisition and financing activities as summarized below.
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Results of Operations
Consolidated Income Statement Analysis
Below is an analysis of our consolidated statements of operations and provides the primary reasons for significant increases and decreases in the various income statement line items from period to period. Our consolidated statements of operations are as follows (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating revenues |
| $ | 1,274,407 |
|
| $ | 985,122 |
|
| $ | 3,842,651 |
|
| $ | 2,501,740 |
|
Costs of sales |
|
| 1,159,677 |
|
|
| 909,391 |
|
|
| 3,560,146 |
|
|
| 2,306,047 |
|
Gross profit |
|
| 114,730 |
|
|
| 75,731 |
|
|
| 282,505 |
|
|
| 195,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
| 46,845 |
|
|
| 34,548 |
|
|
| 131,170 |
|
|
| 95,021 |
|
General and administrative expenses |
|
| 6,599 |
|
|
| 9,903 |
|
|
| 18,762 |
|
|
| 24,429 |
|
Depreciation, amortization and accretion expense |
|
| 21,329 |
|
|
| 19,118 |
|
|
| 61,523 |
|
|
| 56,732 |
|
Total operating expenses |
|
| 74,773 |
|
|
| 63,569 |
|
|
| 211,455 |
|
|
| 176,182 |
|
(Loss) gain on dispositions and lease terminations, net |
|
| (318 | ) |
|
| 426 |
|
|
| (620 | ) |
|
| 375 |
|
Operating income |
|
| 39,639 |
|
|
| 12,588 |
|
|
| 70,430 |
|
|
| 19,886 |
|
Other income, net |
|
| 120 |
|
|
| 127 |
|
|
| 352 |
|
|
| 419 |
|
Interest expense |
|
| (8,351 | ) |
|
| (4,928 | ) |
|
| (22,333 | ) |
|
| (12,295 | ) |
Income before income taxes |
|
| 31,408 |
|
|
| 7,787 |
|
|
| 48,449 |
|
|
| 8,010 |
|
Income tax expense (benefit) |
|
| 3,815 |
|
|
| (1,065 | ) |
|
| 1,843 |
|
|
| (1,664 | ) |
Net income |
|
| 27,593 |
|
|
| 8,852 |
|
|
| 46,606 |
|
|
| 9,674 |
|
Accretion of preferred membership interests |
|
| 575 |
|
|
| — |
|
|
| 1,138 |
|
|
| — |
|
Net income available to limited partners |
| $ | 27,018 |
|
| $ | 8,852 |
|
| $ | 45,468 |
|
| $ | 9,674 |
|
23
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Operating revenues |
| $ | 1,145,396 |
|
| $ | 1,475,033 |
|
| $ | 2,161,555 |
|
| $ | 2,568,244 |
|
Costs of sales |
|
| 1,047,672 |
|
|
| 1,386,088 |
|
|
| 1,981,772 |
|
|
| 2,400,469 |
|
Gross profit |
|
| 97,724 |
|
|
| 88,945 |
|
|
| 179,783 |
|
|
| 167,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
| 49,798 |
|
|
| 42,216 |
|
|
| 95,421 |
|
|
| 84,325 |
|
General and administrative expenses |
|
| 7,475 |
|
|
| 5,680 |
|
|
| 13,214 |
|
|
| 12,163 |
|
Depreciation, amortization and accretion expense |
|
| 19,298 |
|
|
| 19,919 |
|
|
| 39,118 |
|
|
| 40,194 |
|
Total operating expenses |
|
| 76,571 |
|
|
| 67,815 |
|
|
| 147,753 |
|
|
| 136,682 |
|
Gain (loss) on dispositions and lease terminations, net |
|
| 6,700 |
|
|
| (58 | ) |
|
| 4,933 |
|
|
| (302 | ) |
Operating income |
|
| 27,853 |
|
|
| 21,072 |
|
|
| 36,963 |
|
|
| 30,791 |
|
Other income, net |
|
| 163 |
|
|
| 102 |
|
|
| 424 |
|
|
| 232 |
|
Interest expense |
|
| (10,683 | ) |
|
| (7,321 | ) |
|
| (22,695 | ) |
|
| (13,982 | ) |
Income before income taxes |
|
| 17,333 |
|
|
| 13,853 |
|
|
| 14,692 |
|
|
| 17,041 |
|
Income tax expense (benefit) |
|
| 2,797 |
|
|
| (113 | ) |
|
| 1,135 |
|
|
| (1,972 | ) |
Net income |
|
| 14,536 |
|
|
| 13,966 |
|
|
| 13,557 |
|
|
| 19,013 |
|
Accretion of preferred membership interests |
|
| 615 |
|
|
| 563 |
|
|
| 1,216 |
|
|
| 563 |
|
Net income available to limited partners |
| $ | 13,921 |
|
| $ | 13,403 |
|
| $ | 12,341 |
|
| $ | 18,450 |
|
Three Months Ended SeptemberJune 30, 20222023 Compared to Three Months Ended SeptemberJune 30, 2021
Consolidated Results2022
Operating revenues increased $289decreased $330 million (29 %)(22%) and gross profit increased $39$8.8 million (51%(10%).
Operating revenues
Significant items impacting these results prior to the elimination of intercompanywere:
Operating revenues were:
Intersegment revenues
We present the results of operations of our segments on a consistent basis with how our management views the business. Therefore, our segments are presented before intersegment eliminations (which consist of motor fuel sold by our wholesale segment to our retail segment). As a result, in order to reconcile to our consolidated change in operating revenues, a discussion of the change in intersegment revenues is included in our consolidated MD&A discussion.
Our intersegment revenues increased $137 million (53%), primarily attributable to thean increase in wholesale fuel prices and the incremental intersegment revenues generated by the company operated site count due to the conversion of lessee dealer and commission agent sites acquiredto company operated sites and stronger performance in the acquisition of assets from 7-Eleven.
Cost of sales
Cost of sales increased $250decreased $338 million (28%(24%), which was a result of the increasedecrease in wholesale motor fuel prices, partially offset by the increase in merchandise cost of sales driven by the conversion of lessee dealer and the acquisition of assets from 7-Elevencommission agent sites to company operated sites discussed above.
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Gross profit
Gross profit increased $39$8.8 million (51%(10%), which was primarily driven by increases in motor fuel and merchandise gross profit due to the acquisition of assets from 7-Eleven along with realizing a higher margin per gallon.within our retail segment. See “Results of Operations—Segment Results” for additional gross profit analyses.
Operating expenses
See “Results of Operations—Segment Results” for analyses.
General and administrative expenses
General and administrative expenses decreased $3.3increased $1.8 million (33%(32%) primarily due todriven by a $4.0$1.0 million decreaseincrease in acquisition-related costs driven by a reduction in legal fees incurred in connection with the acquisition of assets from 7-Eleven as comparedlargely related to the third quarterconversion of 2021, partially offset bylessee dealer and commission agent sites to company operated sites, as well as higher management feesequity compensation expense and equity incentive compensation expense.legal fees.
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Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $2.2decreased $0.6 million (12%(3%) primarily from incremental depreciation, amortization and accretion expense from the property and equipment and intangible assets acquired in the acquisition of assets from 7-Eleven. In addition, we recorded $1.6 million in impairment charges during the third quarter of 2022, compared to $1.2 million in impairment charges during the same period of the prior year. These impairment charges were primarily related to our ongoing real estate rationalization effort and the resulting reclassification of these sitesdue to assets held for sale.becoming fully depreciated.
Gain (loss) on dispositions and lease terminations, net
During the three months ended SeptemberJune 30, 2022,2023, we recorded a $0.3$6.1 million net lossgain in connection with our ongoing real estate rationalization effort and a $0.6 million net gain on lease terminations and asset disposals.
During the three months ended SeptemberJune 30, 2021,2022, we recorded net losses on lease terminations and asset disposals, partially offset by a $0.4$0.5 million net gain in connection with our ongoing real estate rationalization effort.
Interest expense
Interest expense increased $3.4 million (69%(46%), primarily driven bydue to a $1.4$3.7 million increase in interest expense incurred on the JKM Credit Facility as a result of the timing of borrowings to fund the acquisition of assets from 7-Eleven as well as the increase in the LIBOR rate. In addition, we incurred $2.0 million more in interest expense on the CAPL Credit Facility (net of the impact of the interest rate swaps) due primarily todriven by the increase in the LIBOR rate and to a lesser degree, higher borrowings primarily to fund a portion of the purchase price for the acquisition of assets from 7-Eleven.interest rates.
Income tax expense (benefit)
We recorded income tax expense (benefit) of $3.8$2.8 million and $(1.1)$(0.1) million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, driven by the income generated (losses incurred) by our taxable subsidiaries.
NineSix Months Ended SeptemberJune 30, 20222023 Compared to NineSix Months Ended SeptemberJune 30, 2021
Consolidated Results2022
Operating revenues increased $1.3 billion (54%decreased $407 million (16%) and gross profit increased $87$12.0 million (44%(7%).
Operating revenues
Significant items impacting these results prior to the elimination of intercompanywere:
Operating revenues were:
Intersegment revenues
We present the results of operations of our segments on a consistent basis with how our management views the business. Therefore, our segments are presented before intersegment eliminations (which consist of motor fuel sold by our wholesale segment to our retail segment). As a result, in order to reconcile to our consolidated change in operating revenues, a discussion of the change in intersegment revenues is included in our consolidated MD&A discussion.
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24 Cost of sales Cost of sales Gross profit Gross profit increased Operating expenses See “Results of Operations—Segment Results” for analyses. General and administrative expenses General and administrative expenses Depreciation, amortization and accretion expense Depreciation, amortization and accretion expense Gain (loss) on dispositions and lease terminations, net During the During the six months ended June 30, 2022, we recorded net losses on lease terminations and asset disposals, partially offset by a $0.9 million gain in connection with our ongoing real estate rationalization effort. Interest expense Interest expense increased Income tax benefit We recorded income tax expense (benefit) of Segment Results We present the results of operations of our segments consistent with how our management views the business. See Note 14 to the financial statements for information regarding a change in our segment reporting. We have recast the results of our segments Wholesale The following table highlights the results of operations and certain operating metrics of our wholesale segment. The narrative following these tables provides an analysis of the results of operations of that segment Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Gross profit: Motor fuel–third party $ 19,500 $ 18,180 $ 54,719 $ 52,232 Motor fuel–intersegment and related party 22,710 15,943 60,796 33,633 Motor fuel gross profit 42,210 34,123 115,515 85,865 Rent gross profit 12,959 13,264 37,944 38,730 Other revenues 1,657 795 5,250 2,658 Total gross profit 56,826 48,182 158,709 127,253 Operating expenses (11,439 ) (8,686 ) (32,201 ) (29,608 ) Operating income $ 45,387 $ 39,496 $ 126,508 $ 97,645 Motor fuel distribution sites (end of period): (a) Motor fuel–third party Independent dealers (b) 623 676 623 676 Lessee dealers (c) 641 643 641 643 Total motor fuel distribution–third party sites 1,264 1,319 1,264 1,319 Motor fuel–intersegment and related party Commission agents (Retail segment) (c) 198 200 198 200 Company operated retail sites (Retail segment) (d) 252 248 252 248 Total motor fuel distribution–intersegment and 450 448 450 448 Motor fuel distribution sites (average during the period): Motor fuel-third party distribution 1,273 1,325 1,288 1,330 Motor fuel-intersegment and related party distribution 451 395 452 368 Total motor fuel distribution sites 1,724 1,720 1,740 1,698 Volume of gallons distributed (in thousands) Third party 212,658 244,545 630,986 700,645 Intersegment and related party 125,427 110,087 370,181 277,392 Total volume of gallons distributed 338,085 354,632 1,001,167 978,037 Wholesale margin per gallon $ 0.125 $ 0.096 $ 0.115 $ 0.088 Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Gross profit: Motor fuel gross profit $ 17,933 $ 19,034 $ 34,641 $ 35,218 Rent gross profit 12,602 12,646 25,857 24,985 Other revenues 1,164 1,807 2,411 3,593 Total gross profit 31,699 33,487 62,909 63,796 Operating expenses (9,924 ) (9,329 ) (19,465 ) (18,045 ) Operating income $ 21,775 $ 24,158 $ 43,444 $ 45,751 Motor fuel distribution sites (end of period): (a) Independent dealers (b) 641 637 641 637 Lessee dealers (c) 586 645 586 645 Total motor fuel distribution sites 1,227 1,282 1,227 1,282 Average motor fuel distribution sites 1,236 1,289 1,253 1,295 Volume of gallons distributed 218,131 214,413 419,992 418,328 Margin per gallon $ 0.082 $ 0.089 $ 0.082 $ 0.084 Three Months Ended Gross profit Motor fuel gross profit The Volume Rent gross profit Rent gross profit was flat for the second quarter of 2023 compared to the same period of 2022 primarily due to $0.6 million of rent increases from our customers as well as the reopening of closed sites, offset by a $0.6 million decrease in rent gross profit due to the conversion of lessee dealer sites to company operated sites. Other revenues Other revenues 26 Operating expenses Operating expenses increased Gross profit Motor fuel gross profit The Volume Rent gross profit The $0.9 million (3%) increase in rent gross profit was primarily driven by $1.6 million of rent increases from our Other revenues Other revenues Operating expenses Operating expenses increased Retail The following table highlights the results of operations and certain operating metrics of our retail segment. The narrative following these tables provides an analysis of the results of operations of that segment (in thousands, except for the number of retail Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 2023 2022 2023 2022 Gross profit: Motor fuel $ 30,206 $ 7,750 $ 50,031 $ 18,120 $ 35,737 $ 29,841 $ 62,497 $ 56,145 Merchandise 20,649 15,543 57,496 37,876 24,232 20,165 42,355 36,847 Rent 2,395 2,266 7,100 6,190 2,263 2,258 4,774 4,705 Other revenue 3,093 2,310 9,375 6,480 3,793 3,194 7,248 6,282 Total gross profit 56,343 27,869 124,002 68,666 66,025 55,458 116,874 103,979 Operating expenses (35,406 ) (25,862 ) (98,969 ) (65,413 ) (39,874 ) (32,887 ) (75,956 ) (66,280 ) Operating income $ 20,937 $ 2,007 $ 25,033 $ 3,253 $ 26,151 $ 22,571 $ 40,918 $ 37,699 Retail sites (end of period): Commission agents (a) 198 200 198 200 Company operated retail sites(b) 252 248 252 248 Total system sites at the end of the period 450 448 450 448 Company operated retail sites (a) 292 253 292 253 Commission agents (b) 190 199 190 199 Total retail segment sites 482 452 482 452 Total system operating statistics: Average retail fuel sites during the period 451 395 452 368 Total retail segment statistics: Volume of gallons sold 126,669 110,523 371,524 278,564 130,804 128,815 249,889 244,855 Average retail fuel sites 477 454 468 454 Margin per gallon, before deducting credit card fees and 0.370 0.340 0.345 0.330 Commission agents statistics: Average retail fuel sites during the period 198 201 199 203 Company operated site statistics: Average retail fuel sites 286 254 273 254 Margin per gallon, before deducting credit card fees $ 0.394 $ 0.350 $ 0.369 $ 0.339 Merchandise gross profit percentage 29.0 % 27.3 % 28.4 % 27.0 % Company operated retail site statistics: Average retail fuel sites during the period 253 194 253 165 Merchandise gross profit percentage 27.1 % 26.7 % 27.1 % 26.8 % Commission site statistics: Average retail fuel sites 191 200 195 200 Margin per gallon, before deducting credit card fees and $ 0.320 $ 0.320 $ 0.297 $ 0.312 Three Months Ended Gross profit increased Gross profit 28 Operating expenses Operating expenses increased Gross profit increased Gross profit Operating expenses Operating expenses increased Non-GAAP Financial Measures We use the non-GAAP financial measures EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio. EBITDA represents net income before deducting interest expense, income taxes and depreciation, amortization and accretion (which includes certain impairment charges). Adjusted EBITDA represents EBITDA as further adjusted to exclude equity-based compensation expense, gains or losses on dispositions and lease terminations, net and certain discrete acquisition related costs, such as legal and other professional fees, separation benefit costs and certain other discrete non-cash items arising from purchase accounting. Distributable Cash Flow represents Adjusted EBITDA less cash interest expense, sustaining capital expenditures and current income tax expense. The Distribution Coverage Ratio is computed by dividing Distributable Cash Flow by distributions paid. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are used as supplemental financial measures by management and by external users of our financial statements, such as investors and lenders. EBITDA and Adjusted EBITDA are used to assess our financial performance without regard to financing methods, capital structure or income taxes and the ability to incur and service debt and to fund capital expenditures. In addition, Adjusted EBITDA is used to assess the operating performance of our business on a consistent basis by excluding the impact of items which do not result directly from the wholesale distribution of motor fuel, the leasing of real property, or the day to day operations of our retail site activities. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are also used to assess the ability to generate cash sufficient to make distributions to our unitholders. We believe the presentation of EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio provides useful information to investors in assessing the financial condition and results of operations. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio should not be considered alternatives to net income or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio have important limitations as analytical tools because they exclude some but not all items that affect net income. Additionally, because EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio may be defined differently by other companies in our industry, our definitions may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The following table presents reconciliations of EBITDA, Adjusted EBITDA, and Distributable Cash Flow to net income, the most directly comparable U.S. GAAP financial measure, for each of the periods indicated (in thousands, except for per unit amounts): Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 2023 2022 2023 2022 Net income (a) $ 27,593 $ 8,852 $ 46,606 $ 9,674 $ 14,536 $ 13,966 $ 13,557 $ 19,013 Interest expense 8,351 4,928 22,333 12,295 10,683 7,321 22,695 13,982 Income tax expense (benefit) 3,815 (1,065 ) 1,843 (1,664 ) 2,797 (113 ) 1,135 (1,972 ) Depreciation, amortization and accretion expense 21,329 19,118 61,523 56,732 19,298 19,919 39,118 40,194 EBITDA 61,088 31,833 132,305 77,037 47,314 41,093 76,505 71,217 Equity-based employee and director compensation expense 654 342 1,608 1,096 562 222 1,123 954 Loss (gain) on dispositions and lease terminations, net 318 (426 ) 620 (375 ) (Gain) loss on dispositions and lease terminations, net (6,700 ) 58 (4,933 ) 302 Acquisition-related costs (b) 107 4,141 985 8,502 1,022 10 1,241 878 Adjusted EBITDA 62,167 35,890 135,518 86,260 42,198 41,383 73,936 73,351 Cash interest expense (7,668 ) (4,267 ) (20,280 ) (11,113 ) (10,207 ) (6,631 ) (20,370 ) (12,612 ) Sustaining capital expenditures (c) (1,974 ) (975 ) (5,191 ) (3,407 ) (1,436 ) (1,663 ) (3,485 ) (3,217 ) Current income tax expense (1,656 ) (214 ) (2,519 ) (548 ) (160 ) (678 ) (554 ) (863 ) Distributable Cash Flow $ 50,869 $ 30,434 $ 107,528 $ 71,192 $ 30,395 $ 32,411 $ 49,527 $ 56,659 Distributions paid 19,913 19,894 59,713 59,659 19,925 19,904 39,843 39,800 Distribution Coverage Ratio 2.55x 1.53x 1.80x 1.19x 1.53x 1.63x 1.24x 1.42x Liquidity and Capital Resources Liquidity Our principal liquidity requirements are to finance our operations, fund acquisitions, service our debt and pay distributions to our unitholders. We expect our ongoing sources of liquidity to include cash generated by operations, proceeds from sales of sites in connection with our real estate rationalization efforts, borrowings under the CAPL Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, acquisitions, and partnership distributions, will depend on our future operating performance, which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we will, from time to time, consider opportunities to repay, redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause us to seek additional debt or equity financing in future periods. We believe that we will have sufficient cash flow from operations, borrowing capacity under the CAPL Cash Flows The following table summarizes cash flow activity (in thousands): Nine Months Ended September 30, Six Months Ended June 30, 2022 2021 2023 2022 Net cash provided by operating activities $ 126,460 $ 76,267 $ 47,263 $ 54,659 Net cash used in investing activities (24,169 ) (283,200 ) (6,688 ) (14,429 ) Net cash (used in) provided by financing activities (98,151 ) 214,667 Net cash used in financing activities (52,138 ) (44,306 ) Operating Activities Net cash provided by operating activities As is typical in our industry, our current liabilities exceed our current assets as a result of the longer settlement of real estate and motor fuel taxes as well as operating lease obligations as compared to the shorter settlement of receivables for fuel and rent. Investing Activities We incurred capital expenditures of Financing Activities We paid Distributions Distribution activity for Quarter Ended Record Date Payment Date Cash Distribution Cash Distribution December 31, 2021 February 3, 2022 February 10, 2022 0.5250 19,896 March 31, 2022 May 3, 2022 May 11, 2022 0.5250 19,904 June 30, 2022 August 3, 2022 August 10, 2022 0.5250 19,913 September 30, 2022 November 3, 2022 November 10, 2022 0.5250 19,913 Quarter Ended Record Date Payment Date Cash Distribution Cash Distribution December 31, 2022 February 3, 2023 February 10, 2023 $ 0.5250 $ 19,918 March 31, 2023 May 3, 2023 May 10, 2023 0.5250 19,925 June 30, 2023 August 4, 2023 August 11, 2023 0.5250 19,935 The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy at any time. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will continue to pay distributions in the future. Debt As of CAPL Credit Facility $ 593,360 $ 761,491 JKM Credit Facility 158,980 Finance lease obligations 14,779 12,537 Total debt and finance lease obligations 767,119 774,028 Current portion 8,376 2,985 Noncurrent portion 758,743 771,043 Deferred financing costs, net 6,550 10,979 Noncurrent portion, net of deferred financing costs $ 752,193 $ 760,064 See Note 7 to the financial statements for information regarding the amendment and restatement of the CAPL Credit Facility and the termination of the JKM Credit Facility. Taking the interest rate swap contracts into account, our effective interest rate on our CAPL Credit Facility at The amount of availability under our CAPL Credit Facility at Capital Expenditures We make investments to expand, upgrade and enhance existing assets. We categorize our capital requirements as either sustaining capital expenditures, growth capital expenditures or acquisition capital expenditures. Sustaining capital expenditures are those capital expenditures required to maintain our long-term operating income or operating capacity. Acquisition and growth capital expenditures are those capital expenditures that we expect will increase our operating income or operating capacity over the long term. We have the ability to fund our capital expenditures by additional borrowings under our CAPL Credit Facility, The following table outlines our capital expenditures (in thousands): Nine Months Ended September 30, Six Months Ended June 30, 2022 2021 2023 2022 Sustaining capital $ 5,191 $ 3,407 $ 3,485 $ 3,217 Growth 21,593 28,963 7,843 13,186 Acquisitions 1,885 261,993 — 1,885 Total capital expenditures and acquisitions $ 28,669 $ 294,363 $ 11,328 $ 18,288 Growth capital expenditures decreased A significant portion of our growth capital expenditures are discretionary and we regularly review our capital plans in light of anticipated proceeds from sales of sites. Concentration of Customers For the 32 Outlook As noted previously, the prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations, which affect our motor fuel gross profit. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit” for additional information. Our results for We will continue to evaluate acquisitions on an opportunistic basis. Additionally, we will pursue acquisition targets that fit into our strategy. Whether we will be able to execute acquisitions will depend on market conditions, availability of suitable acquisition targets at attractive terms, New Accounting Policies There is no new accounting guidance effective or pending adoption that has had or is anticipated to have a material impact on our financial statements. Critical Accounting Policies There have been no material changes to the critical accounting policies described in our Form 10-K. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk As of June 30, 2023, we had $761.5 million outstanding on our CAPL Credit Facility. Our outstanding borrowings bear interest at SOFR plus an applicable margin, which was 2.25% at June 30, 2023. See Note 8 to the financial statements for information regarding the amendment of our three existing interest rate swap contracts and the entry into four additional interest rate swap contracts. Taking all of these interest rate swap contracts into account, our effective interest rate on our CAPL Credit Facility at June 30, 2023 was 5.1%. A one percentage point change in SOFR would impact annual interest expense by approximately $2.6 million. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of (b) Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as that term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the three months ended 33 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We hereby incorporate by reference into this Item our disclosures made in Part I, Item 1 of this report included in Note ITEM 1A. RISK FACTORS There were no material changes in the risk factors disclosed in the section entitled "Risk Factors" in our Form 10-K during the period covered by this report. ITEM 6. EXHIBITS Exhibit No. Description 31.1 * 31.2 * 32.1*† Certification of Principal Executive Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350 32.2*† Certification of Principal Financial Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350 101.INS* Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 104* Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101 * Filed herewith † Not considered to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CROSSAMERICA PARTNERS LP By: CROSSAMERICA GP LLC, its General Partner By: /s/ Maura Topper Maura Topper Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) Date: Our intersegment revenues increased $631 million (105%), primarily attributable to thean increase in wholesale fuel prices and the incremental intersegment revenues generated by the company operated site count due to the conversion of lessee dealer and commission agent sites acquiredto company operated sites and stronger performance in the acquisition of assets from 7-Eleven.base business.increased $1.3 billion (54%decreased $419 million (17%), which was a result of the increasedecrease in wholesale motor fuel prices, partially offset by the increase in merchandise cost of sales driven by the conversion of lessee dealer and the acquisition of assets from 7-Elevencommission agent sites to company operated sites discussed above.$87$12.0 million (44%(7%), which was primarily driven by increases in motor fuel merchandise and othermerchandise gross profit due to the acquisition of assets from 7-Eleven along with realizing a higher margin per gallon.within our retail segment. See “Results of Operations—Segment Results” for additional gross profit analyses.decreased $5.7increased $1.1 million (23%(9%) primarily due todriven by a $7.5$0.4 million decreaseincrease in acquisition-related costs driven by a reduction in legal fees incurred in connection with the acquisition of assets from 7-Eleven as comparedlargely related to the nine months ended September 30, 2021, partially offset byconversion of lessee dealer and commission agent sites to company operated sites, as well as higher management fees and equity incentive compensation expense.legal fees.increased $4.8decreased $1.1 million (8%(3%) primarily from incremental depreciation, amortization and accretion expense from the property and equipment and intangible assets acquired in the acquisition of assets from 7-Eleven. This increase was partially offsetdriven by a $3.7 million decrease inlower impairment charges related to our ongoing real estate rationalization effort andduring the resulting reclassification of these sites to assets held for salesix months ended June 30, 2023 as compared to the same period of 2021.2022 as well as assets becoming fully depreciated.ninesix months ended SeptemberJune 30, 2023, we recorded a $6.2 million net gain in connection with our ongoing real estate rationalization effort and a $1.3 million net loss on lease terminations and asset disposals.During the nine months ended September 30, 2021, we recorded a $1.5 million gain in connection with our ongoing real estate rationalization effort, partially offset by net losses on lease terminations and asset disposals.$10$8.7 million (82%(62%), primarily driven bydue to a $4.0$7.9 million increase in interest expense incurred on the JKM Credit Facility as a result of the timing of borrowings to fund the acquisition of assets from 7-Eleven as well as the increase in the LIBOR rate along with a $0.9 million increase in amortization of deferred financing costs as a result of entering into the JKM Credit Facility and the amendment to the CAPL Credit Facility. In addition, we incurred $5.2 million more in interest expense on the CAPL Credit Facility (net of the impact of the interest rate swaps) due primarily todriven by the increase in interest rates. In addition, we wrote off $1.1 million in deferred financing costs in the LIBOR rate and tofirst quarter of 2023 as a lesser degree, higher borrowings primarily to fund a portionresult of the purchase price foramendment and restatement of the acquisitionCAPL Credit Facility and termination of assets from 7-Eleven.the JKM Credit Facility.$1.8$1.1 million and $(1.7)$(2.0) million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, driven by the income generated (losses incurred) by our taxable subsidiaries. Therefore,are presented before intersegment eliminations (which consist of motor fuel sold byfor the three and six months ended June 30, 2022 to be consistent with our wholesalenew segment to our retail segment). These comparisons are not necessarily indicative of future results.reporting.2625(thousands(in thousands of dollars, except for the number of distribution sites and per gallon amounts):
related party sitesas of September 30, 2022 and 2021, respectively, we distributed motor fuel to 13 and 14 sub-wholesalers who distributed to additional sites.decreaseincrease in the independent dealer site count was primarily attributable to lossthe acquisition of contracts, most of which were lower margin,assets from CSS and the ongoing real estate rationalization effort, partially offset by the increase in independent dealer sites as a resultnet loss of the real estate rationalization effort and the resulting reclassification of the site from a lessee dealer or commission site to an independent dealer site when we continue to supply the site after divestiture.contracts.decreasesdecrease in the lessee dealer and commission agent site counts were primarily attributable to our real estate rationalization effort.(d)The increase in the company operated site count was primarily attributable to the conversion of certain lessee dealer sites to company operated sites acquired from 7-Eleven.and our real estate rationalization effort.27SeptemberJune 30, 20222023 Compared to Three Months Ended SeptemberJune 30, 20212022increased $8.6decreased $1.8 million (18%(5%) and operating income increased $5.9decreased $2.4 million (15%(10%). These results were impacted by:$8.1$1.1 million (24%decrease (6%) increase in motor fuel gross profit was primarily driven by a 30% increase7% decrease in our average fuel margin per gallon compared to the third quarter of 2021. Our DTW margins were higher for the third quarter of 2022 as compared to the third quartersame period of 20212022 driven by lower terms discounts due to greater volatility in the price oflower crude oil in the third quarter of 2022 as compared to the third quarter of 2021. In addition, we benefited from higher terms discountsprices, partially offset by better sourcing costs as a result of higher crude prices.brand consolidation and other initiatives. The average spot price of WTI crude oil increaseddecreased 32% from $70.58$108.83 per barrel for the thirdsecond quarter of 20212022 to $93.06$73.54 per barrel for the thirdsecond quarter of 2022.2023. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”declined 5%increased 2% primarily due to lower volume in our base business (i.e., results excluding the results from the assets acquired from 7-Eleven), partially offset by the volume generated by the acquisition of assets from 7-Eleven.CSS, partially offset by the net loss of independent dealer contracts and the conversion of lessee dealer sites to company operated sites.increased $0.9decreased $0.6 million (108%(36%) due primarily to higher take-or-pay income related to minimum purchase quantities on ourlower dealer contracts.contract termination fees.$2.8$0.6 million (32%(6%), primarily as a result of an increase inhigher maintenance costs and management fees and environmental costs.fees.NineSix Months Ended SeptemberJune 30, 20222023 Compared to NineSix Months Ended SeptemberJune 30, 20212022increased $31.5decreased $0.9 million (25%(1%) and operating income increased $28.9decreased $2.3 million (30%(5%). TheThese results were drivenimpacted by:$29.7$0.6 million (35%(2%) increasedecrease in motor fuel gross profit was primarily driven by a 31% increase2% decrease in our average fuel margin per gallon compared to the nine months ended September 30, 2021. Our DTW margins were higher for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due to greater volatility in the price of crude oil for the nine months ended September 30, 2022 as compared to the same period of 2021. In addition, we benefited from higher2022 driven by lower terms discounts due to lower crude oil prices, partially offset by better sourcing costs as a result of higher crude prices.brand consolidation and other initiatives. The average spot price of WTI crude oil increased 52%decreased 36% from $65.05$102.01 per barrel for the ninesix months ended SeptemberJune 30, 20212022 to $98.96$74.73 per barrel for the ninesix months ended SeptemberJune 30, 2022.2023. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”also increased 2% primarily as a result ofslightly due to the volume generated by the acquisition of assets from 7-Eleven,CSS, partially offset by lower volumethe net loss of independent dealer contracts and the conversion of lessee dealer sites to company operated sites.base business (i.e., results excludingcustomers as well as the results fromreopening of closed sites, partially offset by a $0.7 million decrease in rent gross profit due to the assets acquired from 7-Eleven).conversion of lessee dealer sites to company operated sites.increased $2.6decreased $1.2 million (98%(33%) due primarily to higher take-or-pay income related to minimum purchase quantities on our dealer contracts and higherlower dealer contract termination fees.$2.6$1.4 million (9%(8%), primarily as a result of an increase inhigher maintenance costs and management fees, partially offset by lower maintenance costs.fees.2827sites)sites and per gallon amounts):
commissions
commissionsThe decrease in the commission site count was primarily attributable to our real estate rationalization effort.(b)acquired from 7-Eleven.largely during the second quarter of 2023.SeptemberJune 30, 20222023 Compared to Three Months Ended SeptemberJune 30, 20212022$28.5$10.6 million (102%(19%) and operating income increased $18.9 million.$3.6 million (16%). These results were impacted by:$22.5$5.9 million (290%(20%) attributable to a 240%an 18% increase in margin per gallon for the three months ended SeptemberJune 30, 20222023, as compared to the same period in 20212022. Volume increased 2% due primarily to an increase in site count due to greater volatility in the priceconversion of crude oil for the three months ended September 30, 2022 as comparedlessee dealer sites to the same period of 2021. In addition, volume increased 15% stemming from the sites acquired from 7-Eleven.company operated sites.$5.1$4.1 million (33%(20%) and $0.8$0.6 million (34%(19%), respectively, driven by an increase in the company operated site count due to the conversion of lessee dealer and commission agent sites acquired from 7-Eleven.to company operated sites as well as an increase in sales and margin percentage in our base business.$9.5$7.0 million (37%(21%) primarilydriven by an increase in the company operated site count due to a $9.0 million increase driven by the conversion of lessee dealer and commission agent sites acquired from 7-Eleven.to company operated sites. In addition, store labor increased, in part due to expanding hours of operation at many of our company operated sites. Lastly, many other cost categories increased due primarily to inflation.29NineSix Months Ended SeptemberJune 30, 20222023 Compared to NineSix Months Ended SeptemberJune 30, 20212022$55.3$12.9 million (81%(12%) and operating income increased $21.8 million.$3.2 million (9%). These results were drivenimpacted by:$31.9$6.4 million (176%(11%) attributable to a 107%9% increase in margin per gallon for the ninesix months ended SeptemberJune 30, 2022 as compared to the same period in 2021 due to greater volatility in the price of crude oil for the nine months ended September 30, 20222023 as compared to the same period of 2021. In addition, volume2022. Volume increased 33% stemming from2% due primarily to an increase in site count due to the conversion of lessee dealer sites acquired from 7-Eleven.to company operated sites.$19.6$5.5 million (52%(15%) and $2.9$1.0 million (45%(15%), respectively, driven by an increase in the company operated site count due to the conversion of lessee dealer and commission agent sites acquired from 7-Eleven.to company operated sites as well as an increase in sales and margin percentage in our base business.$33.6$9.7 million (51%(15%) primarilydriven by an increase in the company operated site count due to a $32.4 million increase driven by the conversion of lessee dealer and commission agent sites acquired from 7-Eleven.to company operated sites. In addition, store labor increased, in part due to expanding hours of operation at many of our company operated sites. Lastly, many other cost categories increased due primarily to inflation.3029(d)(a) the second quarter of 2022, we reconcile Adjusted EBITDA to Net income rather than to Net income available to limited partners. The difference between Net income and Net income available to limited partners is that, beginning in the second quarter of 2022, the accretion of preferred membership interests issued in late March 2022 is a deduction from Net income in computing Net income available to limited partners. Because Adjusted EBITDA is used to assess our financial performance without regard to capital structure, we believe Adjusted EBITDA should be reconciled with Net income, so that the calculation isn’t impacted by the accretion of preferred membership interests. This approach is comparable to our reconciliation of Adjusted EBITDA to Net income available to limited partners in past periods, as we have not recorded accretion of preferred membership interests in past periods.(d)In 2022, we updated our calculation of our Distribution Coverage Ratio to divide Distributable Cash Flow by distributions paid, whereas in prior periods, our Distribution Coverage Ratio was calculated as Distributable Cash Flow divided by the weighted-average diluted common units, and then we divided that result by distributions paid per limited partner unit. Credit Facility and JKM Credit Facility, and if available to us on acceptable terms, issuances of equity and debt securities. We regularly evaluate alternate sources of capital to support our liquidity requirements.3130 Credit Facility and JKM Credit Facility, access to capital markets and alternate sources of funding to meet our financial commitments, debt service obligations, contingencies, anticipated capital expenditures and partnership distributions. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities and/or maintain or increase distributions to unitholders.increased $50.2decreased $7.4 million for the ninesix months ended SeptemberJune 30, 20222023 compared to the same period in 2021,2022, primarily attributable to the incremental cash flow generatedan increase in interest expense driven by the sites acquired from 7-Eleven and the strong DTW margins in 2022.higher interest rates.$26.8$11.3 million and $32.4$16.4 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The decrease was largely driven by reductions in EMV upgrades andthe reduction of rebranding of certain sites including the sites acquired from 7-Eleven. We paid $1.9 million and $262.0 million during the ninesix months ended SeptemberJune 30, 2022 and 2021, respectively, in connection with the closing of the final three sites acquired from 7-Eleven. We received $4.4$4.5 million and $11.0$3.8 million in proceeds primarily from the sale of sites in connection with our real estate rationalization effort for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.$59.9$40.1 million and $59.8$39.9 million in distributions for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, we made total net repayments of $60.7 million and total net borrowings of $283.5 million on our credit facilities.facilities of $3.6 million and $27.5 million. We received $24.4 million in net proceeds from the issuance of preferred membership interests during the ninesix months ended SeptemberJune 30, 2022. We paid $7.1$7.0 million inof deferred financing costs during the nine months ended September 30, 2021 in connection with entering intoamending and restating the CAPL Credit Facility and terminating the JKM Credit Facility and amendmentin the first quarter of the CAPL Credit Facility.2023.20222023 was as follows:
(per unit)
(in thousands)
(per unit)
(in thousands)3231SeptemberJune 30, 2022,2023, our debt and finance lease obligations consisted of the following (in thousands):SeptemberJune 30, 20222023 was 3.9%5.1% (our applicable margin was 2.25% as of SeptemberJune 30, 2022)2023). Letters of credit outstanding under our CAPL Credit Facility at SeptemberJune 30, 20222023 totaled $3.8 million.Our effective interest rate on our JKM Credit Facility at September 30, 2022 was 5.2% (our applicable margin was 2.5% as of September 30, 2022). Letters of credit outstanding under our JKM Credit Facility at September 30, 2022 totaled $0.8$4.5 million.NovemberAugust 3, 2022,2023, after taking into consideration debt covenant restrictions, was $163.6$166 million.The amountSee Note 8 for information regarding the amendment of availability under the JKM Credit Facility at November 3, 2022, after takingthree existing interest rate swap contracts and the entry into consideration debt covenant restrictions, was $14.2 million.four new interest rate swap contracts.JKM Credit Facility, or, if available to us on acceptable terms, accessing the capital markets and issuing additional equity, debt securities or other options, such as the sale of assets. Our ability to access the capital markets may have an impact on our ability to fund acquisitions. We may not be able to complete any offering of securities or other options on terms acceptable to us, if at all.during 2022 as compared with 2021, primarily due to decreases in EMV upgrades andthe decrease of rebranding of certain sites, including the sites acquired from 7-Eleven.ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, approximately 20%18% and 19%21% of our rent income was from two multi-site operators.3320222023 relative to 20212022 are anticipated to be impacted by the acquisition of assets from 7-Eleven,CSS, which is anticipated to increase gross profit both within the wholesale segment. In addition, we anticipate that we will continue to realize reductions in our fuel costs as a result of new or amended fuel purchase contracts. We continue to consider the highest and retail segmentsbest use class of trade for each of our properties, which may result in the conversion of sites from one class of trade to another and operating expenses withinultimately increases or decreases in the retail segment. Givengross profit for the Wholesale and Retail segments. Lastly, given increases in LIBOR,interest rates, we also anticipate higher interest expense in 20222023 as compared to 2021.See "Recent Developments—Acquisition of Assets from Community Service Stations, Inc." for information regarding our recently announced acquisition expected to close in the fourth quarter of 2022.acquisition relatedacquisition-related compliance with customary regulatory requirements, and our ability to finance such acquisitions on favorable terms and in compliance with our debt covenant restrictions.Involving Critical Accountingand EstimatesNoOther than interest rate risk, no significant changes to our market risk have occurred since December 31, 2021.2022. For a discussion of market risks affecting us, refer to Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk” included in our Form 10-K.SeptemberJune 30, 2022.2023.SeptemberJune 30, 2022,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.1110 of the financial statements.3410.13534NovemberAugust 7, 202220233635