UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10–Q10-Q
(Mark One)
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☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172022
OR
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☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission fileFile 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 |
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645 Hamilton Street, Suite Allentown, PA |
| 18101 (Zip Code) (610) 625-8000 |
(Address of Principal Executive Offices) |
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(610) 625-8000
(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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,” “small“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ |
| Accelerated filer |
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Non-accelerated filer ☐ | Smaller reporting company ☐ | |||||
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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 November 3, 2017,August 4, 2022, the registrant had outstanding 33,984,97037,928,970 common units.
COMMONLY USED DEFINED TERMS
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The following is a list of certain acronyms and terms generally used in the industry and throughout this document: | |||||
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CrossAmerica Partners LP and subsidiaries: | |||||
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CrossAmerica | CrossAmerica Partners LP, the Partnership, CAPL, we, us, our |
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CrossAmerica Partners LP related | |||||
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| Dunne Manning | ||||
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General Partner |
| CrossAmerica GP LLC, the General Partner of CrossAmerica, a Delaware limited liability | |||
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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, | ||||
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| Board of Directors of our General Partner |
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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. | |
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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, 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. | ||
COVID-19 Pandemic | In December 2019, a novel strain of coronavirus was reported to have surfaced. In March 2020, the World Health Organization declared the outbreak a pandemic. | ||
DTW | Dealer tank wagon contracts, which are variable market-based cent per gallon priced wholesale motor fuel distribution or supply | ||
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EBITDA |
| Earnings before interest, taxes, depreciation, amortization and accretion, a non-GAAP financial measure | |
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Exchange Act |
| Securities Exchange Act of 1934, as amended | |
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| CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, | |
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Internal Revenue Code |
| Internal Revenue Code of 1986, as amended |
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IPO |
| Initial public offering of CrossAmerica Partners LP on October 30, 2012 |
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| Credit Agreement, as amended on July 29, 2021 among CAPL JKM Partners, Holdings and Manufacturers and Traders Trust Company, as administrative agent, swingline lender and issuing bank |
LIBOR | London Interbank Offered Rate | |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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Partnership Agreement |
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Predecessor Entity |
| Wholesale distribution |
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| West Texas Intermediate crude oil |
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PART I - FINANCIALFINANCIAL INFORMATION
CROSSAMERICA PARTNERS LP
(Thousands of Dollars, except unit data)
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| September 30, |
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| December 31, |
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| 2017 |
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| 2016 |
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ASSETS |
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Current assets: |
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Cash |
| $ | 1,566 |
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| 1,350 |
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Accounts receivable, net of allowances of $476 and $487, respectively |
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| 23,930 |
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| 29,251 |
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Accounts receivable from related parties |
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| 14,994 |
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| 12,975 |
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Inventories |
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| 12,020 |
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| 13,164 |
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Assets held for sale |
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| 2,496 |
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| 2,111 |
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Other current assets |
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| 7,168 |
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| 6,556 |
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Total current assets |
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| 62,174 |
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| 65,407 |
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Property and equipment, net |
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| 634,718 |
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| 677,329 |
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Intangible assets, net |
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| 68,989 |
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| 80,760 |
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Goodwill |
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| 89,109 |
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| 89,109 |
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Other assets |
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| 22,499 |
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| 19,384 |
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Total assets |
| $ | 877,489 |
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| $ | 931,989 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Current portion of debt and capital lease obligations |
| $ | 2,884 |
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| $ | 2,100 |
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Accounts payable |
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| 37,785 |
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| 34,903 |
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Accounts payable to related parties |
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| 16,289 |
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| 9,958 |
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Accrued expenses and other current liabilities |
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| 19,210 |
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| 15,705 |
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Motor fuel taxes payable |
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| 12,081 |
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| 12,467 |
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Total current liabilities |
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| 88,249 |
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| 75,133 |
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Debt and capital lease obligations, less current portion |
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| 454,773 |
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| 465,119 |
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Deferred tax liabilities, net |
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| 39,952 |
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| 42,923 |
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Asset retirement obligations |
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| 28,155 |
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| 27,750 |
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Other long-term liabilities |
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| 97,085 |
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| 100,253 |
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Total liabilities |
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| 708,214 |
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| 711,178 |
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Commitments and contingencies |
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Equity: |
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Partners’ Capital |
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Common units—(33,984,970 and 33,524,952 units issued and outstanding at September 30, 2017 and December 31, 2016, respectively) |
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| 169,569 |
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| 221,044 |
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General Partner’s interest |
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| — |
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Total Partners’ Capital |
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| 169,569 |
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| 221,044 |
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Noncontrolling interests |
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| (294 | ) |
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| (233 | ) |
Total equity |
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| 169,275 |
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| 220,811 |
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Total liabilities and equity |
| $ | 877,489 |
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| $ | 931,989 |
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(Unaudited)
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| June 30, |
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| December 31, |
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| 2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 3,572 |
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| $ | 7,648 |
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Accounts receivable, net of allowances of $542 and $458, respectively |
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| 48,456 |
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| 33,331 |
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Accounts receivable from related parties |
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| 1,194 |
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| 1,149 |
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Inventory |
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| 56,770 |
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| 46,100 |
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Assets held for sale |
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| 4,649 |
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| 4,907 |
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Other current assets |
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| 20,804 |
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| 13,180 |
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Total current assets |
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| 135,445 |
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| 106,315 |
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Property and equipment, net |
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| 745,594 |
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| 755,454 |
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Right-of-use assets, net |
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| 164,934 |
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| 169,333 |
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Intangible assets, net |
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| 100,232 |
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| 114,187 |
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Goodwill |
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| 99,409 |
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| 100,464 |
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Other assets |
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| 29,794 |
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| 24,389 |
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Total assets |
| $ | 1,275,408 |
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| $ | 1,270,142 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Current portion of debt and finance lease obligations |
| $ | 5,575 |
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| $ | 10,939 |
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Current portion of operating lease obligations |
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| 35,212 |
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| 34,832 |
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Accounts payable |
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| 87,730 |
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| 67,173 |
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Accounts payable to related parties |
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| 7,581 |
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| 7,679 |
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Accrued expenses and other current liabilities |
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| 21,121 |
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| 20,682 |
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Motor fuel and sales taxes payable |
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| 21,325 |
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| 22,585 |
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Total current liabilities |
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| 178,544 |
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| 163,890 |
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Debt and finance lease obligations, less current portion |
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| 788,199 |
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| 810,635 |
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Operating lease obligations, less current portion |
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| 135,328 |
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| 140,149 |
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Deferred tax liabilities, net |
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| 9,505 |
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| 12,341 |
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Asset retirement obligations |
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| 46,212 |
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| 45,366 |
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Other long-term liabilities |
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| 46,533 |
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| 41,203 |
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Total liabilities |
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| 1,204,321 |
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| 1,213,584 |
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Commitments and contingencies |
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Preferred membership interests |
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| 24,993 |
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Equity: |
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Common units—37,912,710 and 37,896,556 units issued and |
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| 32,412 |
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| 53,528 |
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Accumulated other comprehensive income |
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| 13,682 |
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| 3,030 |
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Total equity |
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| 46,094 |
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| 56,558 |
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Total liabilities and equity |
| $ | 1,275,408 |
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| $ | 1,270,142 |
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See Condensed Notes to Consolidated Financial Statements.
1
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, Except Unitexcept unit and Per Unit Amounts)per unit amounts)
(Unaudited)
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| For the Three Months Ended September 30, |
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| For the Nine Months Ended September 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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Operating revenues(a) |
| $ | 544,092 |
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| $ | 487,950 |
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| $ | 1,542,167 |
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| $ | 1,368,334 |
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Costs of sales(b) |
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| 502,517 |
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| 448,812 |
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| 1,421,524 |
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| 1,251,491 |
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Gross profit |
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| 41,575 |
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| 39,138 |
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| 120,643 |
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| 116,843 |
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Income from CST Fuel Supply equity interests |
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| 3,752 |
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| 4,022 |
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| 11,185 |
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| 12,318 |
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Operating expenses: |
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Operating expenses |
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| 15,371 |
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| 14,224 |
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| 46,853 |
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| 45,754 |
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General and administrative expenses |
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| 5,994 |
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| 6,142 |
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| 23,731 |
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| 18,068 |
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Depreciation, amortization and accretion expense |
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| 14,049 |
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| 13,432 |
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| 42,675 |
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| 40,594 |
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Total operating expenses |
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| 35,414 |
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| 33,798 |
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| 113,259 |
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| 104,416 |
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Gain on sales of assets, net |
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| 2,371 |
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| 631 |
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| 2,013 |
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| 525 |
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Operating income |
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| 12,284 |
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| 9,993 |
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| 20,582 |
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| 25,270 |
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Other income (expense), net |
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| 121 |
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| (59 | ) |
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| 366 |
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| 375 |
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Interest expense |
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| (7,102 | ) |
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| (5,634 | ) |
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| (20,599 | ) |
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| (16,403 | ) |
Income before income taxes |
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| 5,303 |
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| 4,300 |
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| 349 |
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| 9,242 |
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Income tax expense (benefit) |
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| 966 |
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| 1,308 |
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| (1,686 | ) |
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| 851 |
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Net income |
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| 4,337 |
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| 2,992 |
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| 2,035 |
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| 8,391 |
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Less: net income (loss) attributable to noncontrolling interests |
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| 4 |
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| 3 |
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| (1 | ) |
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| 9 |
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Net income attributable to limited partners |
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| 4,333 |
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| 2,989 |
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| 2,036 |
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| 8,382 |
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IDR distributions |
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| (1,115 | ) |
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| (877 | ) |
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| (3,162 | ) |
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| (2,456 | ) |
Net income (loss) available to limited partners |
| $ | 3,218 |
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| $ | 2,112 |
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| $ | (1,126 | ) |
| $ | 5,926 |
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Net income (loss) per limited partner unit: |
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Basic earnings per common unit |
| $ | 0.09 |
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| $ | 0.06 |
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| $ | (0.03 | ) |
| $ | 0.18 |
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Diluted earnings per common unit |
| $ | 0.09 |
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| $ | 0.06 |
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| $ | (0.03 | ) |
| $ | 0.18 |
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Basic and diluted earnings per subordinated unit |
| n/a |
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| n/a |
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| n/a |
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| $ | 0.18 |
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Weighted-average limited partner units: |
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Basic common units |
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| 33,931,056 |
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| 33,366,380 |
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| 33,773,964 |
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| 31,714,462 |
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Diluted common units(c) |
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| 33,937,702 |
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| 33,391,096 |
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| 33,773,964 |
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| 31,766,802 |
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Basic and diluted subordinated units |
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| — |
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| — |
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| — |
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| 1,537,956 |
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Total diluted common and subordinated units |
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| 33,937,702 |
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| 33,391,096 |
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| 33,773,964 |
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| 33,304,758 |
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Distribution paid per common and subordinated unit |
| $ | 0.6225 |
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| $ | 0.6025 |
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| $ | 1.8525 |
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| $ | 1.7925 |
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Distribution declared (with respect to each respective period) per common and subordinated unit |
| $ | 0.6275 |
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| $ | 0.6075 |
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| $ | 1.8675 |
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| $ | 1.8075 |
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Supplemental information: |
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(a) Includes excise taxes of: |
| $ | 19,704 |
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| $ | 19,698 |
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| $ | 58,351 |
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| $ | 59,902 |
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(a) Includes revenues from fuel sales to related parties of: |
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| 101,190 |
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| 99,891 |
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| 281,611 |
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| 280,330 |
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(a) Includes rental income of: |
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| 21,644 |
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| 19,752 |
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| 65,090 |
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| 59,634 |
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(b) Includes rental expense of: |
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| 4,876 |
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| 5,103 |
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| 14,593 |
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| 14,870 |
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(c) Diluted common units were not used in the calculation of diluted earnings per common unit for the nine months ended September 30, 2017 because to do so would have been antidilutive. |
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Operating revenues (a) |
| $ | 1,475,033 |
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| $ | 859,334 |
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| $ | 2,568,244 |
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| $ | 1,516,618 |
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Cost of sales (b) |
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| 1,386,088 |
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| 794,240 |
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| 2,400,469 |
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| 1,396,656 |
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Gross profit |
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| 88,945 |
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| 65,094 |
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| 167,775 |
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| 119,962 |
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Operating expenses: |
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Operating expenses (c) |
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| 42,216 |
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| 31,070 |
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| 84,325 |
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| 60,473 |
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General and administrative expenses |
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| 5,680 |
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| 6,876 |
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| 12,163 |
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| 14,526 |
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Depreciation, amortization and accretion expense |
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| 19,919 |
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| 19,583 |
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| 40,194 |
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| 37,614 |
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Total operating expenses |
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| 67,815 |
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| 57,529 |
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| 136,682 |
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| 112,613 |
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(Loss) gain on dispositions and lease terminations, net |
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| (58 | ) |
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| 597 |
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|
| (302 | ) |
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| (51 | ) |
Operating income |
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| 21,072 |
|
|
| 8,162 |
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|
| 30,791 |
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|
| 7,298 |
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Other income, net |
|
| 102 |
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| 204 |
|
|
| 232 |
|
|
| 292 |
|
Interest expense |
|
| (7,321 | ) |
|
| (3,870 | ) |
|
| (13,982 | ) |
|
| (7,367 | ) |
Income before income taxes |
|
| 13,853 |
|
|
| 4,496 |
|
|
| 17,041 |
|
|
| 223 |
|
Income tax benefit |
|
| (113 | ) |
|
| (293 | ) |
|
| (1,972 | ) |
|
| (599 | ) |
Net income |
|
| 13,966 |
|
|
| 4,789 |
|
|
| 19,013 |
|
|
| 822 |
|
Accretion of preferred membership interests |
|
| 563 |
|
|
| — |
|
|
| 563 |
|
|
| — |
|
Net income available to limited partners |
| $ | 13,403 |
|
| $ | 4,789 |
|
| $ | 18,450 |
|
| $ | 822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted earnings per common unit |
| $ | 0.35 |
|
| $ | 0.13 |
|
| $ | 0.49 |
|
| $ | 0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average limited partner units: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic common units |
|
| 37,912,710 |
|
|
| 37,874,868 |
|
|
| 37,906,463 |
|
|
| 37,872,079 |
|
Diluted common units |
|
| 37,957,434 |
|
|
| 37,905,010 |
|
|
| 37,951,466 |
|
|
| 37,902,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
(a) includes excise taxes of: |
| $ | 71,601 |
|
| $ | 50,047 |
|
| $ | 138,460 |
|
| $ | 93,753 |
|
(a) includes rent income of: |
|
| 20,849 |
|
|
| 20,862 |
|
|
| 41,476 |
|
|
| 41,334 |
|
(b) excludes depreciation, amortization and accretion |
|
|
|
|
|
|
|
|
|
|
|
| ||||
(b) includes rent expense of: |
|
| 5,945 |
|
|
| 6,031 |
|
|
| 11,786 |
|
|
| 11,944 |
|
(c) includes rent expense of: |
|
| 3,801 |
|
|
| 3,265 |
|
|
| 7,509 |
|
|
| 6,461 |
|
See Condensed Notes to Consolidated Financial Statements.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 2,035 |
|
| $ | 8,391 |
|
Adjustments to reconcile net income to net cash flows provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion expense |
|
| 42,675 |
|
|
| 40,594 |
|
Amortization of deferred financing fees |
|
| 1,278 |
|
|
| 1,106 |
|
Amortization of below market leases, net |
|
| 57 |
|
|
| 150 |
|
Provision for losses on doubtful accounts |
|
| 46 |
|
|
| 93 |
|
Deferred income taxes |
|
| (2,971 | ) |
|
| 69 |
|
Equity-based employees and directors compensation expense |
|
| 1,889 |
|
|
| 2,597 |
|
Amended Omnibus Agreement fees settled in common units |
|
| 9,900 |
|
|
| 7,600 |
|
Gain on sales of assets, net |
|
| (2,013 | ) |
|
| (525 | ) |
Erickson working capital adjustment |
|
| — |
|
|
| 335 |
|
Changes in working capital, net of acquisitions |
|
| 13,542 |
|
|
| 3,288 |
|
Net cash provided by operating activities |
|
| 66,438 |
|
|
| 63,698 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
| 23,900 |
|
|
| 610 |
|
Capital expenditures |
|
| (10,175 | ) |
|
| (11,567 | ) |
Principal payments received on notes receivable |
|
| 345 |
|
|
| 214 |
|
Refund payment related to the sale by CST of California and Wyoming assets |
|
| — |
|
|
| 17,528 |
|
Cash paid in connection with acquisitions, net of cash acquired |
|
| (2,779 | ) |
|
| (94,173 | ) |
Cash paid to CST in connection with acquisitions |
|
| — |
|
|
| (2,900 | ) |
Net cash provided by (used in) investing activities |
|
| 11,291 |
|
|
| (90,288 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under the revolving credit facility |
|
| 88,840 |
|
|
| 178,270 |
|
Repayments on the revolving credit facility |
|
| (98,856 | ) |
|
| (82,182 | ) |
Repurchases of common units |
|
| — |
|
|
| (3,252 | ) |
Payments of long-term debt and capital lease obligations |
|
| (1,509 | ) |
|
| (1,772 | ) |
Payments of sale leaseback obligations |
|
| (635 | ) |
|
| (541 | ) |
Payment of deferred financing fees |
|
| (6 | ) |
|
| — |
|
Contributions from parent company |
|
| 329 |
|
|
| — |
|
Distributions paid on distribution equivalent rights |
|
| (15 | ) |
|
| (34 | ) |
Distributions paid to holders of the IDRs |
|
| (3,162 | ) |
|
| (2,456 | ) |
Distributions paid to noncontrolling interests |
|
| (60 | ) |
|
| (85 | ) |
Distributions paid on common and subordinated units |
|
| (62,439 | ) |
|
| (59,653 | ) |
Net cash (used in) provided by financing activities |
|
| (77,513 | ) |
|
| 28,295 |
|
Net increase in cash |
|
| 216 |
|
|
| 1,705 |
|
Cash at beginning of period |
|
| 1,350 |
|
|
| 1,192 |
|
Cash at end of period |
| $ | 1,566 |
|
| $ | 2,897 |
|
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 19,013 |
|
| $ | 822 |
|
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
| ||
Depreciation, amortization and accretion expense |
|
| 40,194 |
|
|
| 37,614 |
|
Amortization of deferred financing costs |
|
| 1,370 |
|
|
| 521 |
|
Credit loss expense |
|
| 88 |
|
|
| 32 |
|
Deferred income tax benefit |
|
| (2,836 | ) |
|
| (921 | ) |
Equity-based employee and director compensation expense |
|
| 954 |
|
|
| 754 |
|
Loss on dispositions and lease terminations, net |
|
| 302 |
|
|
| 51 |
|
Changes in operating assets and liabilities, net of acquisitions |
|
| (4,426 | ) |
|
| 2,141 |
|
Net cash provided by operating activities |
|
| 54,659 |
|
|
| 41,014 |
|
|
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
|
| ||
Principal payments received on notes receivable |
|
| 66 |
|
|
| 85 |
|
Proceeds from sale of assets |
|
| 3,793 |
|
|
| 5,600 |
|
Capital expenditures |
|
| (16,403 | ) |
|
| (21,911 | ) |
Cash paid in connection with acquisitions, net of cash acquired |
|
| (1,885 | ) |
|
| (4,166 | ) |
Net cash used in investing activities |
|
| (14,429 | ) |
|
| (20,392 | ) |
|
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
|
| ||
Borrowings under revolving credit facilities |
|
| 57,600 |
|
|
| 57,000 |
|
Repayments on revolving credit facilities |
|
| (61,620 | ) |
|
| (36,399 | ) |
Borrowings under the Term Loan Facility |
|
| 1,120 |
|
|
| — |
|
Repayments on the Term Loan Facility |
|
| (24,600 | ) |
|
| — |
|
Net proceeds from issuance of preferred membership interests |
|
| 24,430 |
|
|
| — |
|
Payments of finance lease obligations |
|
| (1,337 | ) |
|
| (1,287 | ) |
Payments of deferred financing costs |
|
| (6 | ) |
|
| — |
|
Distributions paid on distribution equivalent rights |
|
| (93 | ) |
|
| (63 | ) |
Distributions paid on common units |
|
| (39,800 | ) |
|
| (39,765 | ) |
Net cash used in financing activities |
|
| (44,306 | ) |
|
| (20,514 | ) |
Net increase in cash and cash equivalents |
|
| (4,076 | ) |
|
| 108 |
|
|
|
|
|
|
|
| ||
Cash and cash equivalents at beginning of period |
|
| 7,648 |
|
|
| 513 |
|
Cash and cash equivalents at end of period |
| $ | 3,572 |
|
| $ | 621 |
|
See Condensed Notes to Consolidated Financial Statements.
3
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(Thousands of Dollars, except unit amounts)
(Unaudited)
|
| Limited Partners’ Interest |
|
|
|
|
|
|
| |||||||
|
| Common |
|
| AOCI |
|
| Total Equity |
| |||||||
|
| Units |
|
| Dollars |
|
| Dollars |
|
| Dollars |
| ||||
Balance at December 31, 2021 |
|
| 37,896,556 |
|
| $ | 53,528 |
|
| $ | 3,030 |
|
| $ | 56,558 |
|
Net income |
|
| — |
|
|
| 5,047 |
|
|
| — |
|
|
| 5,047 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 8,113 |
|
|
| 8,113 |
|
Realized loss on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 206 |
|
|
| 206 |
|
Total other comprehensive income |
|
| — |
|
|
| — |
|
|
| 8,319 |
|
|
| 8,319 |
|
Comprehensive income |
|
| — |
|
|
| 5,047 |
|
|
| 8,319 |
|
|
| 13,366 |
|
Issuance of units related to 2021 Bonus Plan |
|
| 16,154 |
|
|
| 327 |
|
|
| — |
|
|
| 327 |
|
Distributions paid |
|
| — |
|
|
| (19,942 | ) |
|
| — |
|
|
| (19,942 | ) |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2020 |
|
| 37,868,046 |
|
| $ | 112,124 |
|
| $ | (2,456 | ) |
| $ | 109,668 |
|
Net loss |
|
| — |
|
|
| (3,967 | ) |
|
| — |
|
|
| (3,967 | ) |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 2,017 |
|
|
| 2,017 |
|
Realized loss on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 231 |
|
|
| 231 |
|
Total other comprehensive income |
|
| — |
|
|
| — |
|
|
| 2,248 |
|
|
| 2,248 |
|
Comprehensive (loss) income |
|
| — |
|
|
| (3,967 | ) |
|
| 2,248 |
|
|
| (1,719 | ) |
Issuance of units related to 2020 Bonus Plan |
|
| 6,822 |
|
|
| 126 |
|
|
| — |
|
|
| 126 |
|
Tax effect from intra-entity transfer of assets |
|
| — |
|
|
| (757 | ) |
|
| — |
|
|
| (757 | ) |
Distributions paid |
|
| — |
|
|
| (19,912 | ) |
|
| — |
|
|
| (19,912 | ) |
Balance at March 31, 2021 |
|
| 37,874,868 |
|
| $ | 87,614 |
|
| $ | (208 | ) |
| $ | 87,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
| — |
|
|
| 4,789 |
|
|
| — |
|
|
| 4,789 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized loss on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| (68 | ) |
|
| (68 | ) |
Realized loss on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| 253 |
|
|
| 253 |
|
Total other comprehensive income |
|
| — |
|
|
| — |
|
|
| 185 |
|
|
| 185 |
|
Comprehensive income |
|
| — |
|
|
| 4,789 |
|
|
| 185 |
|
|
| 4,974 |
|
Tax effect from intra-entity transfer of assets |
|
| — |
|
|
| (325 | ) |
|
| — |
|
|
| (325 | ) |
Distributions paid |
|
| — |
|
|
| (19,916 | ) |
|
| — |
|
|
| (19,916 | ) |
Balance at June 30, 2021 |
|
| 37,874,868 |
|
| $ | 72,162 |
|
| $ | (23 | ) |
| $ | 72,139 |
|
See Condensed Notes to Consolidated Financial Statements.
4
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES
CST’s Merger
CST entered into the Merger Agreement dated as of August 21, 2016, with Circle K and Merger Sub. On June 28, 2017, Merger Sub merged with and into CST, at which time the separate corporate existence of Merger Sub ceased, and CST survived the Merger as an indirect, wholly owned subsidiary of Circle K.
As a result of the Merger, Circle K indirectly owns all of the membership interests in our General Partner, as well as a 20.8% limited partner interest in the Partnership and all of the IDRs of the Partnership. Circle K, through its indirect ownership interest in the sole member of our General Partner, has the ability to appoint all of the members of the Board and to control and manage our operations and activities.
Description of Business
Our business consists of:
the wholesale distribution of motor fuels;
the retail distribution of motor fuels to end customers at retail sites operated by commission agents or us;
the owning or leasing of retail sites used in the retail distribution of motor fuels and, in turn, generating rental income from the lease or sublease of the retail sites; and
the retail sale of motor fuels to end customers at retail sites operated by commission agents and ourselves; and
The financial statements reflectsites, including the consolidated resultssale of the Partnership and its wholly owned subsidiaries. Our primary operations are conducted by the following consolidated wholly owned subsidiaries:
LGW, which distributes motor fuels on a wholesale basis and generates qualified income under Section 7704(d) of the Internal Revenue Code;
LGPR, which functions as the real estate holding company of CrossAmerica and holds assets that generate rental income that is qualifying under Section 7704(d) of the Internal Revenue Code; and
LGWS, which owns and leases (or leases and sub-leases) real estate and personal property used in the retail distribution of motor fuels, as well as provides maintenance and other services to its customers. In addition, LGWS distributes motor fuels on a retail basis and sells convenience merchandise items to end customers at company operated retail sites and sells motor fuel on a retail basis at sites operated by commission agents. Income from LGWS generally is not qualifying income under Section 7704(d) of the Internal Revenue Code.
In 2015, we issued our common units as consideration in the purchase of equity interests in CST Fuel Supply and the real property associated with certain of CST’s NTI retail sites. In addition, we also issued, and may continue to issue, our common units as payment to Circle K for charges and expenses incurred by us under the Amended Omnibus Agreement. There is no obligation for CST or our General Partner to accept common units representing limited partner interests in lieu of cash for amounts due under the Amended Omnibus Agreement. CST also acquired our common units through open market purchases from September 2015 through December 2015. At September 30, 2017, Circle K indirectly owned 20.8% of our limited partner interests.
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, 20172022 and for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 included in the consolidated financial statements has been derived from our unaudited financial statements. Financial information as of December 31, 20162021 has been derived from our audited financial statements and notes thereto as of that date.
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating results for the ninethree and six months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2022. 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 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 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.
Significant Accounting Policies
There have been no material changes to the significant accounting policies described in our Form 10-K.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09–Revenue from Contracts with Customers (Topic 606), which results in comprehensiveCertain new revenue accounting guidance, requires enhanced disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized, and develops a common revenue standard under U.S. GAAP and International Financial Reporting Standards. Specifically, the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. With the issuance of ASU 2015-14, which deferred the effective date by one year, this guidance is effective January 1, 2018. The guidance can be applied either retrospectively to each prior reporting period presented, or as a cumulative-effect adjustment as of the date of adoption. Although management continues to evaluate the impact of adopting this new guidance, we have completed an assessment and to date, have not identified any material impact on the financial statements, although it will affect disclosures. This guidance is expected to apply to over 90% of our revenues as the only primary revenue stream outside the scope of this guidance is rental income. We anticipate using the modified retrospective method of adoption.
In February 2016, the FASB issued ASU 2016-02–Leases (Topic 842). This standard modifies existing guidance for reporting organizations that enter into leases to increase transparency by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and requires a modified retrospective approach to adoption. Early adoption is permitted. Management continues to evaluate the impact of this new guidance, but the adoption will have a material impact on our balance sheet as we will be required to recognize right-of-use assets and lease liabilities for operating leases. We do not anticipate adopting this guidance early. We intend to apply each of the practical expedients in adopting this new guidance.
In October 2016, the FASB issued ASU 2016-16–Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard requires companies to account for income tax effects of intercompany transactions other than inventory in the period in which the transfer occurs. This guidance is effective January 1, 2018 and requires a modified retrospective application through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We have chosen to early adopt the standard effective January 1, 2017, which had no impact as of the date of adoption but could impact us in the future.
In January 2017, the FASB issued ASU 2017-01–Business Combinations (Topic 805): Clarifying the Definition of a Business. This standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. We have chosen to early adopt this standard effective January 1, 2017. Although there was no impact upon adoption, among other things, this guidance will result in the capitalization rather than expensing of acquisition costs in future transactions that will be accounted for as asset acquisitions rather than business combinations under the new definition of a business.
5
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2017, the FASB issued ASU 2017-04–Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for a company's annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Management has elected to early adopt this guidance effective January 1, 2017, which had no impact upon adoption but could result in a change in the measurement of an impairment loss if an impairment was required to be recorded in the future.
Certain other new financial accounting pronouncements have become effective for our financial statements during 2022, but the adoption of these pronouncements did not materially impact our financial position, results of operations or disclosures.
Concentration Risk
For the ninesix months ended SeptemberJune 30, 20172022 and 2016, we distributed approximately 14% and 17% of our total wholesale distribution volumes to DMS and its affiliates and DMS and its affiliates accounted for approximately 23% and 27% of our rental income, respectively.
For the nine months ended September 30, 2017 and 2016, we distributed 8% of our total wholesale distribution volume to CST retail sites that are not supplied by CST Fuel Supply and received 22% and 21% of our rental income from CST, respectively.
For more information regarding transactions with DMS and its affiliates and CST, see Note 8.
For the nine months ended September 30, 2017 and 2016, we received 9% of our rental income from a lessee dealer that operates certain of the retail sites acquired through the PMI and One Stop acquisitions.
For the nine months ended September 30, 2017,2021, respectively, our wholesale business purchased approximately 28%, 27%81% and 17%79% of its motor fuel from ExxonMobil, BP4 suppliers. Approximately 24% and Motiva, respectively. For the nine months ended September 30, 2016, our wholesale business purchased approximately 29%, 24% and 23% of its motor fuel from ExxonMobil, BP and Motiva (Shell), respectively. No other fuel suppliers accounted for 10% or more29% of our motor fuel purchases duringgallons sold for the ninesix months ended SeptemberJune 30, 20172022 and 2016.2021, respectively, were delivered by 2 carriers.
Valero supplied substantially all ofFor the motor fuel purchased by CST Fuel Supply during all periods presented. During the ninesix months ended SeptemberJune 30, 20172022 and 2016, CST Fuel Supply purchased2021, respectively, approximately 1.3 billion21% and 1.4 billion gallons19% of motor fuelour rent income was from Valero, respectively. 2 multi-site operators.
Note 2. ACQUISITIONS
On August 4, 2017, we entered into a definitive asset purchase agreement (the “Purchase Agreement”), by and among (i) CrossAmerica, (ii) Jet-Pep, Inc., and (iii) other persons listed as signatories in the Purchase Agreement (collectively the “Sellers”). Pursuant to the Purchase Agreement, we have agreed to purchase the real property and the fuel supply business of 92 fee simple sites, and the leasehold interest in 5 leased real property sites; and the fuel supply business to four independent dealers, all located in Alabama (“Acquired Assets”), for an aggregate cash consideration of $72.3 million (the “Purchase Price”), subject to certain closing adjustments. We also agreed to assume certain liabilities and pay for the value of the petroleum inventory contained in the retail sites. Circle K also entered into a definitive asset purchase agreement with the Sellers. The closing of the purchase of the Acquired Assets and the closing of the purchase by Circle K of certain related retail and terminaling assets from the Sellers (the “Circle K Agreements”), are mutually conditioned upon each other. We paid a deposit of $2.8 million in the third quarter of 2017.
The closing of the transaction is expected to occur in the fourth quarter of 2017, and is subject to the satisfaction or waiver of customary closing conditions. The Purchase Agreement contains customary representations, warranties, agreements and obligations of the parties, and termination and closing conditions. We and the Sellers have generally agreed to indemnify each other for breaches of the representations, warranties and covenants contained in the Purchase Agreement, subject to survival period limitations and a general indemnification cap for the Sellers in the amount of $6.5 million in the aggregate for Sellers’ liabilities under the Purchase Agreement and the Circle K Agreements.
6
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2022 and 2021, respectively, approximately 47% and 49% of our merchandise was purchased from 1 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 fuel volumes largely recovered during the second half of 2020 and continued to recover in 2021 and 2022, we cannot predict the scope and severity with which COVID-19 will impact our business. Sustained decreases in fuel volume, erosion of margin and/or volatility in fuel prices could have a material adverse effect on our results of operations, cash flow, financial position and ultimately our ability to pay distributions.
Note 2. ACQUISITION OF ASSETS FROM 7-ELEVEN
In February 2022, we closed on the final 3 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 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 |
|
| (1,027 | ) |
Total assets |
| $ | 3,947 |
|
|
|
|
| |
Accrued expenses and other current liabilities |
|
| 144 |
|
Other non-current liabilities |
|
| 1,800 |
|
Asset retirement obligations |
|
| 118 |
|
Total liabilities |
| $ | 2,062 |
|
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
We have classified four9 sites and 12 sites as held for sale at SeptemberJune 30, 20172022 and December 31, 2016. These assets2021, respectively, which are expected to be sold within aone year of the date they were initially classified as held for sale. such classification. Assets held for sale were as follows (in thousands):
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Land |
| $ | 3,111 |
|
| $ | 3,042 |
|
Buildings and site improvements |
|
| 1,840 |
|
|
| 2,231 |
|
Equipment |
|
| 837 |
|
|
| 939 |
|
Total |
|
| 5,788 |
|
|
| 6,212 |
|
Less accumulated depreciation |
|
| (1,139 | ) |
|
| (1,305 | ) |
Assets held for sale |
| $ | 4,649 |
|
| $ | 4,907 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Land |
| $ | 1,741 |
|
| $ | 882 |
|
Buildings and site improvements |
|
| 1,608 |
|
|
| 1,054 |
|
Equipment and other |
|
| 489 |
|
|
| 702 |
|
Total |
|
| 3,838 |
|
|
| 2,638 |
|
Less accumulated depreciation |
|
| (1,342 | ) |
|
| (527 | ) |
Assets held for sale |
| $ | 2,496 |
|
| $ | 2,111 |
|
The Partnership has continued to focus on divesting lower performing assets. During the three and ninesix months ended SeptemberJune 30, 2017, as approved by the conflicts committee of our Board,2022, we sold 285 and 9 properties to DMR for $16.6$2.3 million and $3.8 million in proceeds, resulting in a $0.5net gain of $0.5 million loss. Three additional properties and approximately $3.0$0.9 million, of proceeds remain in escrow, as of September 30, 2017 until certain conditions are met. These sites were generally sites at which we did not supply fuel or represented vacant land.
respectively. During the three and ninesix months ended SeptemberJune 30, 2017,2021, we sold 26 and 9 properties as a result of the FTC’s requirements associated with the Merger for $6.7$3.0 million and $3.9 million in proceeds, resulting in a gainnet gains of $2.2 million. In addition, Couche-Tard agreed to reimburse us$1.1 million and $1.1 million, respectively.
See Note 5 for the tax liability incurred on the required sale, resulting in additional proceeds of $0.3 million, which was accountedinformation regarding impairment charges primarily recorded upon classifying sites within assets held for as a contribution to partners’ capital.sale.
During the three and nine months ended September 30, 2017, DMS renewed its contract with one of its customers, triggering a $0.8 million earn-out payment by DMS to us under a contract entered into with DMS at the time of CST acquiring our General Partner in October 2014, which was recorded as a gain.
Note 4. INVENTORIES
Inventories consisted of the following (in thousands):
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Retail site merchandise |
| $ | 22,903 |
|
| $ | 22,518 |
|
Motor fuel |
|
| 33,867 |
|
|
| 23,582 |
|
Inventories |
| $ | 56,770 |
|
| $ | 46,100 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Retail site merchandise |
| $ | 7,715 |
|
| $ | 8,374 |
|
Motor fuel |
|
| 4,305 |
|
|
| 4,790 |
|
Inventories |
| $ | 12,020 |
|
| $ | 13,164 |
|
Note 5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
|
| June 30, |
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
|
| 2022 |
|
| 2021 |
| ||||
Land |
| $ | 270,740 |
|
| $ | 280,400 |
|
| $ | 324,700 |
|
| $ | 321,813 |
|
Buildings and site improvements |
|
| 334,705 |
|
|
| 346,834 |
|
|
| 360,743 |
|
|
| 358,335 |
|
Leasehold improvements |
|
| 9,721 |
|
|
| 9,095 |
|
|
| 13,984 |
|
|
| 13,437 |
|
Equipment and other |
|
| 171,208 |
|
|
| 169,245 |
| ||||||||
Equipment |
|
| 327,031 |
|
|
| 314,393 |
| ||||||||
Construction in progress |
|
| 3,720 |
|
|
| 3,173 |
|
|
| 7,985 |
|
|
| 9,457 |
|
Property and equipment, at cost |
|
| 790,094 |
|
|
| 808,747 |
|
|
| 1,034,443 |
|
|
| 1,017,435 |
|
Accumulated depreciation and amortization |
|
| (155,376 | ) |
|
| (131,418 | ) |
|
| (288,849 | ) |
|
| (261,981 | ) |
Property and equipment, net |
| $ | 634,718 |
|
| $ | 677,329 |
|
| $ | 745,594 |
|
| $ | 755,454 |
|
We recorded impairment charges of $0.5 million and $2.9 million during the three months ended June 30, 2022 and 2021 and $1.2 million and $5.2 million during the six months ended June 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
Intangible assets consisted of the following (in thousands):
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| ||||||||||||
Wholesale fuel supply contracts/rights |
| $ | 118,201 |
|
| $ | (53,607 | ) |
| $ | 64,594 |
|
| $ | 118,201 |
|
| $ | (44,298 | ) |
| $ | 73,903 |
|
| $ | 208,697 |
|
| $ | (109,499 | ) |
| $ | 99,198 |
|
| $ | 212,194 |
|
| $ | (99,124 | ) |
| $ | 113,070 |
|
Trademarks |
|
| 1,094 |
|
|
| (807 | ) |
|
| 287 |
|
|
| 1,094 |
|
|
| (685 | ) |
|
| 409 |
| ||||||||||||||||||||||||
Trademarks/licenses |
|
| 2,208 |
|
|
| (1,212 | ) |
|
| 996 |
|
|
| 2,208 |
|
|
| (1,174 | ) |
|
| 1,034 |
| ||||||||||||||||||||||||
Covenant not to compete |
|
| 4,131 |
|
|
| (3,095 | ) |
|
| 1,036 |
|
|
| 4,131 |
|
|
| (2,503 | ) |
|
| 1,628 |
|
|
| 450 |
|
|
| (412 | ) |
|
| 38 |
|
|
| 450 |
|
|
| (367 | ) |
|
| 83 |
|
Below market leases |
|
| 11,401 |
|
|
| (8,329 | ) |
|
| 3,072 |
|
|
| 12,081 |
|
|
| (7,261 | ) |
|
| 4,820 |
| ||||||||||||||||||||||||
Total intangible assets |
| $ | 134,827 |
|
| $ | (65,838 | ) |
| $ | 68,989 |
|
| $ | 135,507 |
|
| $ | (54,747 | ) |
| $ | 80,760 |
|
| $ | 211,355 |
|
| $ | (111,123 | ) |
| $ | 100,232 |
|
| $ | 214,852 |
|
| $ | (100,665 | ) |
| $ | 114,187 |
|
See Note 2 regarding the purchase accounting for the final 3 sites acquired from 7-Eleven during the first quarter.
Note 7. DEBTGOODWILL
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 June 30, 2022 |
| $ | 81,590 |
|
| $ | 17,819 |
|
| $ | 99,409 |
|
See Note 2 regarding the purchase accounting for the final 3 sites acquired from 7-Eleven during the first quarter.
Note 8. DEBT
Our balances for long-term debt and capitalfinance lease obligations arewere as follows (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
$550 million revolving credit facility |
| $ | 431,484 |
|
| $ | 441,500 |
|
Note payable |
|
| 779 |
|
|
| 822 |
|
Capital lease obligations |
|
| 27,728 |
|
|
| 28,455 |
|
Total debt and capital lease obligations |
|
| 459,991 |
|
|
| 470,777 |
|
Current portion |
|
| 2,884 |
|
|
| 2,100 |
|
Noncurrent portion |
|
| 457,107 |
|
|
| 468,677 |
|
Deferred financing fees |
|
| (2,334 | ) |
|
| (3,558 | ) |
Noncurrent portion, net of deferred financing fees |
| $ | 454,773 |
|
| $ | 465,119 |
|
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
CAPL Credit Facility |
| $ | 626,555 |
|
| $ | 630,575 |
|
JKM Credit Facility |
|
| 158,980 |
|
|
| 182,460 |
|
Finance lease obligations |
|
| 15,471 |
|
|
| 16,809 |
|
Total debt and finance lease obligations |
|
| 801,006 |
|
|
| 829,844 |
|
Current portion |
|
| 5,575 |
|
|
| 10,939 |
|
Noncurrent portion |
|
| 795,431 |
|
|
| 818,905 |
|
Deferred financing costs, net |
|
| 7,232 |
|
|
| 8,270 |
|
Noncurrent portion, net of deferred financing costs |
| $ | 788,199 |
|
| $ | 810,635 |
|
8
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, the proceeds of which were used to pay off borrowings under the Term Loan Facility. As of June 30, 2022, 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 2022 |
| $ | — |
|
| $ | 1,631 |
|
| $ | 1,631 |
|
2023 |
|
| 8,261 |
|
|
| 3,328 |
|
|
| 11,589 |
|
2024 |
|
| 637,570 |
|
|
| 3,427 |
|
|
| 640,997 |
|
2025 |
|
| 11,015 |
|
|
| 3,527 |
|
|
| 14,542 |
|
2026 |
|
| 128,689 |
|
|
| 3,629 |
|
|
| 132,318 |
|
2027 |
|
| — |
|
|
| 1,221 |
|
|
| 1,221 |
|
Total future payments |
|
| 785,535 |
|
|
| 16,763 |
|
|
| 802,298 |
|
Less interest component |
|
| — |
|
|
| 1,292 |
|
|
| 1,292 |
|
|
|
| 785,535 |
|
|
| 15,471 |
|
|
| 801,006 |
|
Current portion |
|
| 2,754 |
|
|
| 2,821 |
|
|
| 5,575 |
|
Long-term portion |
| $ | 782,781 |
|
| $ | 12,650 |
|
| $ | 795,431 |
|
CAPL Credit Facility
Our $550 million revolving credit facilityCAPL Credit Facility is secured by substantially all of our assets. assets, including our equity interest in Holdings, other than the assets of unrestricted subsidiaries designated as such under the CAPL Credit Facility. Holdings and its subsidiaries are unrestricted subsidiaries under the CAPL Credit Facility.
Taking the interest rate swap contracts described in Note 9 into account, our effective interest rate on our CAPL Credit Facility at June 30, 2022 was 3.2% (our applicable margin was 2.25% as of June 30, 2022).
Letters of credit outstanding at SeptemberJune 30, 20172022 and December 31, 20162021 totaled $6.5 million, which reduce our availability under the credit facility. The amount of availability at September 30, 2017 under the revolving credit facility, after taking into account debt covenant restrictions, was $53.7$4.0 million. In connection with future acquisitions, the revolving credit facility requires, among other things, that we have, after giving effect to such acquisition, at least $20.0 million in the aggregate of borrowing availability under the revolving credit facility and unrestricted cash on the balance sheet on the date of such acquisition.
Financial Covenants and Interest Rate
We are required to comply with certain financial covenants under the credit facility. We are required to maintain a total leverage ratio (as defined in the credit facility) for the most recently completed four fiscal quarters of less than or equal to 4.50 : 1.00, except for periods following a material acquisition, generally defined as an acquisition with a purchase price of at least $30.0 million. The total leverage ratio shall not exceed 5.00 : 1.00 for the first three full fiscal quarters following the closing of a material acquisition. If we issued Qualified Senior Notes (as defined in the credit facility) in the aggregate principal amount of $175.0 million or greater, the ratio shall not exceed 5.50 : 1.00. If we issued Qualified Senior Notes of $175.0 million or greater, we are also required to maintain a senior leverage ratio (as defined in the credit facility) of less than or equal to 3.00 : 1.00 and a consolidated interest coverage ratio (as defined in the credit facility) of at least 2.75 : 1.00. As of SeptemberJune 30, 2017,2022, we were in compliance with theseour financial covenants.covenants under the CAPL Credit Facility. The amount of availability under the CAPL Credit Facility at June 30, 2022, after taking into consideration debt covenant restrictions, was $119.4 million.
OutstandingJKM Credit Facility
The obligations under the JKM Credit Facility are guaranteed by Holdings and its subsidiaries (other than CAPL JKM Partners) and secured by a lien on substantially all of the assets 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 revolving credit facility bear interest at LIBOR plusJKM Credit Facility had a margin of 3.00%. Our borrowings had an effectiveweighted-average interest rate of 4.24%3.6% as of SeptemberJune 30, 2017.2022 (LIBOR plus an applicable margin, which was 2.5% as of June 30, 2022).
8Letters of credit outstanding at June 30, 2022 and December 31, 2021 totaled $0.8 million.
As of June 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 June 30, 2022, after taking into consideration debt covenant restrictions, was $10.0 million.
9
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. INTEREST RATE SWAP CONTRACTS
The interest payments on our CAPL Credit Facility vary based on monthly changes in the one-month LIBOR and changes, if any, in the applicable margin, which is based on our leverage ratio as further discussed in Note 8. To hedge against interest rate volatility on our variable rate borrowings under the CAPL Credit Facility, we entered into 3 interest rate swap contracts in 2020 that mature on April 1, 2024. One interest rate swap contract has a notional amount of $150 million and a fixed rate of 0.495%. The other interest rate swap contracts each have a notional amount of $75 million and a fixed rate of 0.38%. All of these 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 $13.7 million and $3.0 million at June 30, 2022 and December 31, 2021, respectively. See Note 12 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 $0.3 million and $(0.3) million for the three months ended June 30, 2022 and 2021 and an insignificant amount and $(0.5) million for the six months ended June 30, 2022 and 2021, respectively.
We currently estimate that a gain of $8.0 million will be reclassified from AOCI 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 8.10. RELATED-PARTY TRANSACTIONS
Transactions with CST
Wholesale Motor Fuel Sales and Rental IncomeReal Estate Rentals
We sell wholesale motor fuel under a master fuel distribution agreement to 48 CST retail sites and lease real property on 73 retail sites to CST under a master lease agreement each having initial 10-year terms. The fuel distribution agreement provides us with a fixed wholesale mark-up per gallon. The master lease agreement is a triple net lease.
Revenues from wholesale fuel sales and real property rental income from CSTTopStar, an entity affiliated with Joseph V. Topper, Jr., a member of the Board, were as follows (in thousands):
|
| For the Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Revenues from motor fuel sales to CST |
| $ | 36,449 |
|
| $ | 31,738 |
|
| $ | 100,683 |
|
| $ | 87,819 |
|
Rental income from CST |
| $ | 4,262 |
|
| $ | 4,207 |
|
| $ | 12,823 |
|
| $ | 12,841 |
|
Accounts receivable from CST for fuel amounted to $3.5$22.7 million and $3.2 million at September 30, 2017 and December 31, 2016, respectively.
Amended Omnibus Agreement and Management Fees
We incurred $2.9 million and $3.9$14.6 million for the three months ended SeptemberJune 30, 20172022 and 20162021 and $11.5$39.8 million and $12.1$25.8 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively, including incentive compensation costs2021, respectively. Accounts receivable from TopStar were $1.2 million and non-cash stock-based compensation$1.3 million at June 30, 2022 and December 31, 2021, respectively.
CrossAmerica leases real estate from the Topper Group. Rent expense under these lease agreements was $2.5 million and $2.2 million for the Amendedthree months ended June 30, 2022 and 2021 and $4.8 million and $4.5 million for the six months ended June 30, 2022 and 2021, respectively.
Omnibus Agreement
We incurred expenses under the Omnibus Agreement, whichincluding costs for store level personnel at our company operated sites, totaling $20.5 million and $13.0 million for the three months ended June 30, 2022 and 2021 and $40.6 million and $25.8 million for the six months ended June 30, 2022 and 2021, respectively. Such expenses are recorded as a component ofincluded in operating expenses and general and administrative expenses in the statementstatements of operations. Amounts payable to CST were $16.3the Topper Group related to expenses incurred by the Topper Group on our behalf in accordance with the Omnibus Agreement totaled $5.1 million and $10.0$3.7 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. The amounts payable at September 30, 2017 include separation benefits associated with the Merger
Common Unit Distributions and equity compensation expense associated with CST stock-based awards. See Note 15 for additional information.Other Equity Transactions
Common Units Issued to CST as Consideration for Amounts Due Under the Terms of the Amended Omnibus Agreement
As approved by the independent conflicts committee of the Board, the PartnershipWe distributed $7.7 million and CST mutually agreed to settle, from time to time, some or all of the amounts due under the terms of the Amended Omnibus Agreement in newly issued common units representing limited partner interests in the Partnership. We issued the following common units to CST as consideration for amounts due under the terms of the Amended Omnibus Agreement:
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CST Fuel Supply Equity Interests
CST Fuel Supply provides wholesale motor fuel distribution$9.7 million to the majority of CST’s legacy U.S. retail sites at cost plus a fixed markup per gallon. We owned a 17.5% total interest in CST Fuel Supply at September 30, 2017 and 2016. We account for the income derived from our equity interest of CST Fuel Supply as “Income from CST Fuel Supply equity” on our statement of operations, which amounted to $3.8 million and $4.0 million for the three months ended September 30, 2017 and 2016, respectively, and $11.2 million and $12.3 million for the nine months ended September 30, 2017 and 2016, respectively.
9
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Merger, the Federal Trade Commission (FTC) approved a final order requiring the divestiture by CST of certain retail fuel stations. As a result, in September 2017, 61 sites were sold to a third party and removed from the fuel distribution agreement between CST Marketing and Supply, a wholly-owned subsidiary of CST Fuel Supply, and CST Services, a wholly owned subsidiary of Circle K, and CST Marketing and Supply no longer supplies fuel to such sites. To compensate for the decrease in the amount of motor fuels sold by CST Marketing and Supply, CST Services agreed to purchase at least 114.9 million gallons annually (the “Annual Commitment”) in addition to the volumes continued to be sold under the fuel distribution agreement to retail fuel stations that remain with CST after the divestiture. In addition, should CST Services fail to purchase all or a portion of the Annual Commitment, CST Services has agreed to make monthly payments to CST Marketing and Supply in the amount of the seller’s margin of 5 cents per gallon under the fuel distribution agreement multiplied by the number of gallons not physically sold pursuant to the Annual Commitment. Consequently, the Partnership, by virtue of its 17.5% ownership interest in CST Fuel Supply, the 100% owner of CST Marketing and Supply, will continue to receive its share from the volumes sold to the 61 retail sites prior to the FTC mandated divestiture. This agreement continues until the fuel distribution agreement between CST Marketing and Supply and CST Services is terminated, which had an initial term of 10 years expiring in December 2024.
In July 2016, CST provided a refund payment to us related to our 17.5% interest in CST Fuel Supply resulting from the sale by CST of 79 retail sites in California and Wyoming to 7-Eleven, Inc. and its wholly-owned subsidiary, SEI Fuel Services, Inc., to which CST Fuel Supply no longer supplies motor fuel. The purpose of the refund payment was to make us whole for the decrease in the value of our interest in CST Fuel Supply arising from sales volume decreases. The total refund payment received by us, as approved by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST, was approximately $18.2 million ($17.5 million in cash with the remainder in CrossAmerica common units owned by CST) and was accounted for as a contribution to equity.
Purchase of Fuel from CST
We purchase the fuel supplied to 32 retail sites from CST Fuel Supply of which we own a 17.5% interest, and resell the wholesale motor fuel to independent dealers and sub-wholesalers. We purchased $6.2 million and $5.7 million of motor fuel from CST Fuel Supply for the three months ended September 30, 2017 and 2016, and $17.9 million and $14.7 million for the nine months ended September 30, 2017 and 2016, respectively, in connection with these retail sites.
IDR and Common Unit Distributions
We distributed $1.1 million and $0.9 million to CST related to its ownership of our IDRs and $4.3 million and $3.9 millionTopper Group related to its ownership of our common units during the three months ended SeptemberJune 30, 20172022 and 2016,2021 and $15.3 million and $19.4 million for the six months ended June 30, 2022 and 2021, respectively.
We distributed $3.2$2.6 million and $2.5$0.5 million to CSTaffiliates of John B. Reilly, III related to its ownership of our IDRs and $12.6 million and $11.5 million related to itstheir ownership of our common units during the ninethree months ended SeptemberJune 30, 20172022 and 2016, respectively.
Income Tax Reimbursement
As discussed in Note 3, we sold 2 properties during the three2021 and nine months ended September 30, 2017 as a result of the FTC’s requirements associated with Couche-Tard’s acquisition of CST. Couche-Tard agreed to reimburse us for the tax liability incurred on the required sale, resulting in additional proceeds of $0.3 million, which was accounted for as a contribution to partners’ capital.
Wholesale Motor Fuel Sales and Real Estate Rentals
Revenues from motor fuel sales and rental income from DMS and its affiliates were as follows (in thousands):
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Revenues from motor fuel sales to DMS and its affiliates |
| $ | 64,741 |
|
| $ | 68,153 |
|
| $ | 180,928 |
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| $ | 192,511 |
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Rental income from DMS and its affiliates |
| $ | 4,739 |
|
| $ | 5,037 |
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| $ | 14,472 |
|
| $ | 16,250 |
|
Accounts receivable from DMS and its affiliates totaled $10.3$5.2 million and $8.6 million at September 30, 2017 and December 31, 2016, respectively.
Revenues from rental income from Topstar were $0.2 million and $0.4$1.0 million for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
See Note 13 for information regarding the issuance of preferred membership interests to related parties.
10
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CrossAmerica leases real estate from certain entities affiliated with Joseph V. Topper, Jr., director of the Board. Rent expense paid to these entities was $0.2 million for the three months ended September 30, 2017 and 2016 and $0.7 million and $0.6 million for the nine months ended September 30, 2017 and 2016, respectively.
As discussed in Note 3, DMS renewed its contract with one of its customers, triggering a $0.8 million earn-out payment by DMS to us under a contract entered into with DMS at the time of CST acquiring our General Partner in October 2014.
Also as discussed in Note 3, we sold 28 properties to DMR during the three and nine months ended September 30, 2017 for $16.6 million.
Maintenance and Environmental Costs
Certain maintenance and environmental monitoring and remediation activities are performed by a related party ofan entity affiliated with Joseph V. Topper, Jr., a member of the Board, as approved by the independent conflicts committee of the Board. We incurred charges with this related party of $0.4$0.6 million and $0.3$0.4 million for the three months ended SeptemberJune 30, 20172022 and 20162021 and $1.3 million and $1.2$0.9 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. Accounts payable to this related party amounted to $0.3 million at June 30, 2022.
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 $5.4 million and $5.0 million for three months ended June 30, 2022 and 2021 and $9.9 million and $9.2 million for the six months ended June 30, 2022 and 2021, respectively. Amounts payable to this related party amounted to $2.2 million and $1.5 million at June 30, 2022 and December 31, 2021, respectively.
Vehicle Lease
In connection with the services rendered under the Omnibus Agreement, we lease certain vehicles from an entity affiliated with Joseph V. Topper, Jr., a member of the Board, as approved by the independent conflicts committee of the Board. Lease expense was an insignificant amount for the three and six months ended June 30, 2022 and 2021.
Principal Executive Offices
Our principal executive offices are in Allentown, Pennsylvania. We subleaselease office space from CST that CST leases 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. The management fee charged by CST to us under the Amended Omnibus Agreement incorporates this rentalRent expense which amounted to $0.2$0.2 million and $0.4 million for the three months ended SeptemberJune 30, 20172022 and 20162021 and $0.5$0.5 million and $0.4$0.7 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
Public Relations and Website Consulting Services
We have engaged a company affiliated with a member of the Board for public relations and website consulting services. The cost of these services was insignificant for the three and six months ended June 30, 2022 and 2021.
Note 9.11. 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, 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 six months ended June 30, 2022 or 2021.
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 a reservean 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. None ofWe believe that it is not reasonably possible that these proceedings, separately or in the aggregate, are expected towill 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.
11
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Environmental Matters
We were a co-defendant, togethercurrently 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 our General Partner, CST and CST Services, in a lawsuit brought by Charles Nifong, a former employeevarying levels of CST Services who, until March 2015, provided services to us as Chief Investment Officer and Vice President of Finance (Court of Common Pleas, Lehigh County, Pennsylvania, case number 2015-1003). Following CST’s acquisition of our General Partner, the plaintiff alleged breach of contract and associated claims relating to his termination of employment and claimed severance benefitscoverage that is considered adequate under the EICP.circumstances to cover operations and properties. The trial occurredinsurance 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 early October and the decision by the jury was to award Mr. Nifong a total of $1.7 million. Such amount was recorded in general and administrative expensesconjunction with acquisitions. Financial responsibility for the three and nine months ended September 30, 2017. Under the EICP, we were also obligated to pay reasonable legal expenses incurred by the plaintiffenvironmental remediation is negotiated in connection with this dispute,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 expensed as incurred. The Partnership incurred total legal feeswill, 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 $8.5 million and $5.4 million at June 30, 2022 and December 31, 2021, respectively. Indemnification assets related to this casethird-party escrow funds, state funds or insurance recorded on the balance sheet within other current assets and other noncurrent assets totaled $6.6 million and $3.2 million at June 30, 2022 and December 31, 2021, respectively. State funds represent probable state reimbursement amounts. Reimbursement will depend upon the continued maintenance and solvency of $0.6 millionthe 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 nine months ended September 30, 2017.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.
Environmental Matters
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. Under the Amended Omnibus Agreement, theThe Predecessor Entity must indemnifyindemnified us for any costs or expenses that it incurswe 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. The Predecessor Entity’sAs such, these environmental liabilities and indemnification assets associatedare not recorded on the balance sheet of the Partnership.
Similarly, we have generally been indemnified with contributedrespect to known contamination at sites amounted to $4.4 millionacquired from third parties, including our acquisition of certain assets from 7-Eleven. As such, these environmental liabilities and $2.8 million at September 30, 2017 and $6.1 million and $5.1 million at December 31, 2016, respectively.indemnification assets are also not recorded on the balance sheet of the Partnership.
11
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10.12. FAIR VALUE MEASUREMENTS
General
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. The following is a description of the three hierarchy levels.
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Active markets are considered to be those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2—Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets.
Level 3—Unobservable inputs are not corroborated by market data. This category is comprised of financial and non-financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies using significant inputs that are generally less readily observable from objective sources.
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 20172022 or 2016.2021.
As further discussed in Note 11,9, we entered into interest rate swap contracts during 2020 and remeasure the fair value of such 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.
12
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have accrued for unvested phantom units and vested and unvested profits interestsphantom 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. SuchThese fair value measurements are deemedclassified as Level 1 measurements.
Financial Instruments
The fair value of our accounts receivable, notes receivable, and accounts payable approximated their carrying values as of SeptemberJune 30, 20172022 and 2016December 31, 2021 due to the short-term maturity of these instruments. The fair valuevalues of borrowings under the revolving credit facilityCAPL Credit Facility and JKM Credit Facility approximated itstheir carrying values of $431.5 million as of SeptemberJune 30, 20172022 and $441.5 million as of December 31, 2016,2021 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.
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 20 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 11. EQUITY-BASED COMPENSATION12 for additional information on the Term Loan Facility.
OverviewThe 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 for the three and six months ended June 30, 2022.
13
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. 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 record equity-based compensationare 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 componentcorporation. 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 generalthese subsidiaries. Deferred income tax assets and administrative expenses inliabilities are recognized for the statementsfuture tax consequences attributable to temporary differences between the financial statement carrying amounts of operations. Compensation expense was $0.2existing assets and liabilities and their respective tax bases and are measured using enacted tax rates.
We recorded an income tax benefit of $0.1 million and $0.7$0.3 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021 and $1.9an income tax benefit of $2.0 million and $2.6$0.6 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively.
Partnership Equity-Based Awards
Under the Plan, the Partnership granted 1,233 phantom units in June 2017 to an employee of CST who provides services to the Partnership; such phantom units will vest in equal annual installments on the first, second and third anniversaries2021, respectively, as a result of the date of grantlosses incurred by our corporate subsidiaries. The effective tax rate differs from the combined federal and this award was accompanied by tandem distribution equivalent rights that entitle the holder to cash payments equal to the amount of unit distributions authorized to be paid to the holders of our common units
Since we grant awards to employees of CST who provide services to us under the Amended Omnibus Agreement,state statutory rate primarily because only LGWS and since the grants may be settled in cash, unvested phantom units and vested and unvested profits interests receive fair value variable accounting treatment. As such, theyJoe’s Kwik Marts are measured at fair value at each balance sheet reporting date and the cumulative compensation cost recognized is classified as a liability, which is included in accrued expenses and other current liabilities on the consolidated balance sheet. The balance of the accrual at September 30, 2017 and December 31, 2016 totaled $0.8 million and $1.8 million, respectively.
12
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CST granted equity-based awards of approximately 47,000 and 102,000 in the form of time vested restricted stock units of CST, stock options of CST and market share units of CST for the nine months ended September 30, 2017 and 2016, respectively, which were granted to certain employees of CST for services rendered on our behalf. Expense associated with these awards that was charged to us under the Amended Omnibus Agreement was $0.1 million and $0.3 million for the three months ended September 30, 2017 and 2016 and $1.6 million and $1.3 million for the nine months ended September 30, 2017 and 2016, respectively.
At the completion of the Merger, each CST stock option, restricted stock unit and market share unit that was outstanding immediately prior to the completion of the Merger, excluding the CST restricted stock units granted in February 2017, whether vested or unvested, became fully vested and converted into the right to receive a cash payment as defined in the Merger Agreement. The Partnership was allocated a $0.4 million charge upon the accelerated vesting of these awards, included in the expense amounts for the nine months ended September 30, 2017 set forth above.
At the completion of the Merger, each award of CST restricted stock units that was granted in February 2017 converted into the right to receive a cash payment as defined in the Merger Agreement, but such award will remain subject to the same vesting terms and payment schedule as those set forth in the original restricted stock unit award agreement; provided that such award will vest in full upon an involuntary termination of employment without cause, or termination for “Good Reason,” or termination due to death, “Disability” or “Retirement.” Unrecognized compensation expense associated with CST restricted stock units granted in February 2017 amounted to $0.7 million as of September 30, 2017, which will be recognized over the vesting term through January 2020.income tax.
Awards to Members of the Board
In November 2016, the Partnership granted 5,364 phantom units to non-employee directors of the Board as a portion of director compensation. Such awards vested upon the Merger.
In August 2017, the Partnership granted 10,539 phantom units to non-employee directors of the Board as a portion of director compensation. Such awards vest over one year and this award was accompanied by tandem distribution equivalent rights that entitle the holder to cash payments equal to the amount of unit distributions authorized to be paid to the holders of our common units.
The liability for these awards at September 30, 2017 and December 31, 2016 was not significant. The associated compensation expense was not significant for the three months ended September 30, 2017 and 2016 and $0.2 million for the nine months ended September 30, 2017 and 2016.
Note 12.15. NET INCOME PER LIMITED PARTNER UNIT
In addition to the common units, we have identified the IDRs as participating securities andWe 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 (loss), after deducting the IDRs, by the weighted-average number of outstanding common units.
13We 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; however, the preferred membership interests are antidilutive.
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables providetable provides a reconciliation of net income (loss) and weighted-average units used in computing basic and diluted net income (loss) per limited partner unit for the following periods (in thousands, except unit and per unit amounts):
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2017 |
|
| 2016 |
| ||||||||||
|
| Common Units |
|
| Subordinated Units |
|
| Common Units |
|
| Subordinated Units |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid(a) |
| $ | 21,079 |
|
| $ | — |
|
| $ | 20,125 |
|
| $ | — |
|
Allocation of distributions in excess of net income(b) |
|
| (17,861 | ) |
|
| — |
|
|
| (18,013 | ) |
|
| — |
|
Limited partners’ interest in net income - basic and diluted |
| $ | 3,218 |
|
| $ | — |
|
| $ | 2,112 |
|
| $ | — |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partnership units outstanding - basic |
|
| 33,931,056 |
|
|
| — |
|
|
| 33,366,380 |
|
|
| — |
|
Adjustment for phantom units |
|
| 6,646 |
|
|
| — |
|
|
| 24,716 |
|
|
| — |
|
Weighted average limited partnership units outstanding - diluted |
|
| 33,937,702 |
|
|
| — |
|
|
| 33,391,096 |
|
|
| — |
|
Net income per limited partnership unit - basic |
| $ | 0.09 |
|
| $ | — |
|
| $ | 0.06 |
|
| $ | — |
|
Net income per limited partnership unit - diluted |
| $ | 0.09 |
|
| $ | — |
|
| $ | 0.06 |
|
| $ | — |
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Distributions paid |
| $ | 19,904 |
|
| $ | 19,884 |
|
| $ | 39,800 |
|
| $ | 39,765 |
|
Allocation of distributions in excess of net income |
|
| (6,501 | ) |
|
| (15,095 | ) |
|
| (21,350 | ) |
|
| (38,943 | ) |
Limited partners’ interest in net income - basic and diluted |
| $ | 13,403 |
|
| $ | 4,789 |
|
| $ | 18,450 |
|
| $ | 822 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average common units outstanding - basic |
|
| 37,912,710 |
|
|
| 37,874,868 |
|
|
| 37,906,463 |
|
|
| 37,872,079 |
|
Adjustment for phantom and phantom performance units (a) |
|
| 44,724 |
|
|
| 30,142 |
|
|
| 45,003 |
|
|
| 30,146 |
|
Weighted-average common units outstanding - diluted |
|
| 37,957,434 |
|
|
| 37,905,010 |
|
|
| 37,951,466 |
|
|
| 37,902,225 |
|
Net income per common unit - basic and diluted |
| $ | 0.35 |
|
| $ | 0.13 |
|
| $ | 0.49 |
|
| $ | 0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Distributions paid per common unit |
| $ | 0.5250 |
|
| $ | 0.5250 |
|
| $ | 1.0500 |
|
| $ | 1.0500 |
|
Distributions declared (with respect to each respective period) |
| $ | 0.5250 |
|
| $ | 0.5250 |
|
| $ | 1.0500 |
|
| $ | 1.0500 |
|
(a) 1,076,769 and 553,257 potentially dilutive units related to the preferred membership interests were excluded from the calculation of diluted earnings per unit because including them would have been antidilutive for the three and six months ended June 30, 2022, respectively.
|
| For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2017 |
|
| 2016 |
| ||||||||||
|
| Common Units |
|
| Subordinated Units |
|
| Common Units |
|
| Subordinated Units |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid(a) |
| $ | 62,439 |
|
| $ | — |
|
| $ | 55,194 |
|
| $ | 4,459 |
|
Allocation of distributions in excess of net income (loss)(b) |
|
| (63,565 | ) |
|
| — |
|
|
| (49,542 | ) |
|
| (4,185 | ) |
Limited partners’ interest in net income (loss) - basic and diluted |
| $ | (1,126 | ) |
| $ | — |
|
| $ | 5,652 |
|
| $ | 274 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partnership units outstanding - basic |
|
| 33,773,964 |
|
|
| — |
|
|
| 31,714,462 |
|
|
| 1,537,956 |
|
Adjustment for phantom units |
|
| — |
|
|
| — |
|
|
| 52,340 |
|
|
| — |
|
Weighted average limited partnership units outstanding - diluted(c) |
|
| 33,773,964 |
|
|
| — |
|
|
| 31,766,802 |
|
|
| 1,537,956 |
|
Net income (loss) per limited partnership unit - basic |
| $ | (0.03 | ) |
| $ | — |
|
| $ | 0.18 |
|
| $ | 0.18 |
|
Net income (loss) per limited partnership unit - diluted |
| $ | (0.03 | ) |
| $ | — |
|
| $ | 0.18 |
|
| $ | 0.18 |
|
|
|
|
|
|
|
Distributions
Distribution activity for 2017 was as follows:
Quarter Ended |
| Record Date |
| Payment Date |
| Cash Distribution (per unit) |
|
| Cash Distribution (in thousands) |
| ||
December 31, 2016 |
| February 6, 2017 |
| February 13, 2017 |
| $ | 0.6125 |
|
| $ | 20,534 |
|
March 31, 2017 |
| May 8, 2017 |
| May 15, 2017 |
| $ | 0.6175 |
|
| $ | 20,826 |
|
June 30, 2017 |
| August 7, 2017 |
| August 14, 2017 |
| $ | 0.6225 |
|
| $ | 21,079 |
|
September 30, 2017 |
| November 6, 2017 |
| November 13, 2017 |
| $ | 0.6275 |
|
| $ | 21,326 |
|
14
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Distributions
Distribution activity for 2022 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 |
|
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.
Note 13. 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, which may differ significantly from income for financial statement purposes, is assessed at the individual limited partner unit holder 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 period presented.
Certain activities that generate non-qualifying income are conducted through LGWS. LGWS is a tax paying corporate subsidiary of ours that is subject to federal and state income taxes. Current and deferred income taxes are recognized on the earnings of LGWS. 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 of $1.0 million and $1.3 million for the three months ended September 30, 2017 and 2016 and an income tax benefit of $1.7 million and income tax expense of $0.9 million for the nine months ended September 30, 2017 and 2016, respectively, as a result of the income generated or losses incurred by our corporate subsidiaries. The effective tax rate differs from the combined federal and state statutory rate primarily because only LGWS is subject to income tax.
Note 14.16. SEGMENT REPORTING
We conduct our business in two2 segments: 1) the Wholesalewholesale segment and 2) the Retailretail segment. The wholesale segment includes the wholesale distribution of motor fuel to lessee dealers, independent dealers, commission agents DMS, CST and company operated retail sites. 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. Similar to lessee dealers, we have motor fuel distribution agreements with DMS and CST and collect rent from both. The Retailretail segment includes the sale of convenience merchandise items, the retail sale of motor fuel at company operated retail sites and the retail sale of motor fuel at retail sites operated by commission agents.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 Wholesalewholesale segment, we also generate revenues through leasing or subleasing real estate in our Retailretail segment.
As part of our evaluation of the economic performance of our retail sites, we will from time to time convert company owned retail sites from our Retail segment to lessee dealers in our Wholesale segment. As a result, we no longer generate revenues from the retail sale of motor fuel or merchandise at these stores subsequent to the date of conversion and we no longer incur retail operating expenses related to these retail sites. However, we continue to supply these retail sites with motor fuel on a wholesale basis pursuant to the fuel supply contract with the lessee dealer. Further, we continue to own/lease the property and earn rental income under lease/sublease agreements with the lessee dealers under triple net leases. The lessee dealer owns all motor fuel and convenience merchandise and retains all gross profit on such operating activities.
Unallocated items consist primarily of general and administrative expenses, depreciation, amortization and accretion expense, gains on sales of assets,dispositions and lease terminations, net, and the elimination of the Retailretail segment’s intersegment cost of revenues from motor fuel sales against the Wholesalewholesale segment’s intersegment revenues from motor fuel sales. The profit in ending inventory generated by the intersegment motor fuel sales is also eliminated. Total assets by segment are not presented as management does not currently assess performance or allocate resources based on that data.
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 |
| ||||||||||||||||||||
Three Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Wholesale |
|
| Retail |
|
| Unallocated |
|
| Consolidated |
| ||||||||||||||||||||
Three Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Revenues from fuel sales to external customers |
| $ | 400,296 |
|
| $ | 93,285 |
|
| $ | — |
|
| $ | 493,581 |
|
| $ | 795,924 |
|
| $ | 579,325 |
|
| $ | — |
|
| $ | 1,375,249 |
|
Intersegment revenues from fuel sales |
|
| 69,504 |
|
|
| — |
|
|
| (69,504 | ) |
|
| — |
|
|
| 493,423 |
|
|
| — |
|
|
| (493,423 | ) |
|
| — |
|
Revenues from food and merchandise sales |
|
| — |
|
|
| 28,366 |
|
|
| — |
|
|
| 28,366 |
|
|
| — |
|
|
| 73,934 |
|
|
| — |
|
|
| 73,934 |
|
Rent income |
|
| 20,008 |
|
|
| 1,636 |
|
|
| — |
|
|
| 21,644 |
|
|
| 17,839 |
|
|
| 3,010 |
|
|
| — |
|
|
| 20,849 |
|
Other revenue |
|
| 501 |
|
|
| — |
|
|
| — |
|
|
| 501 |
|
|
| 1,807 |
|
|
| 3,194 |
|
|
| — |
|
|
| 5,001 |
|
Total revenues |
| $ | 490,309 |
|
| $ | 123,287 |
|
| $ | (69,504 | ) |
| $ | 544,092 |
|
| $ | 1,308,993 |
|
| $ | 659,463 |
|
| $ | (493,423 | ) |
| $ | 1,475,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from CST Fuel Supply Equity |
| $ | 3,752 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,752 |
| ||||||||||||||||
Operating income (loss) |
| $ | 27,533 |
|
| $ | 2,409 |
|
| $ | (17,658 | ) |
| $ | 12,284 |
|
| $ | 44,264 |
|
| $ | 3,420 |
|
| $ | (26,612 | ) |
| $ | 21,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Three Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Three Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Revenues from fuel sales to external customers |
| $ | 348,702 |
|
| $ | 87,318 |
|
| $ | — |
|
| $ | 436,020 |
|
| $ | 530,099 |
|
| $ | 260,125 |
|
| $ | — |
|
| $ | 790,224 |
|
Intersegment revenues from fuel sales |
|
| 63,126 |
|
|
| — |
|
|
| (63,126) |
|
|
| — |
|
|
| 198,878 |
|
|
| — |
|
|
| (198,878 | ) |
|
| — |
|
Revenues from food and merchandise sales |
|
| — |
|
|
| 31,507 |
|
|
| — |
|
|
| 31,507 |
|
|
| — |
|
|
| 45,208 |
|
|
| — |
|
|
| 45,208 |
|
Rent income |
|
| 18,344 |
|
|
| 1,408 |
|
|
| — |
|
|
| 19,752 |
|
|
| 18,209 |
|
|
| 2,653 |
|
|
| — |
|
|
| 20,862 |
|
Other revenue |
|
| 671 |
|
|
| — |
|
|
| — |
|
|
| 671 |
|
|
| 729 |
|
|
| 2,311 |
|
|
| — |
|
|
| 3,040 |
|
Total revenues |
| $ | 430,843 |
|
| $ | 120,233 |
|
| $ | (63,126 | ) |
| $ | 487,950 |
|
| $ | 747,915 |
|
| $ | 310,297 |
|
| $ | (198,878 | ) |
| $ | 859,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from CST Fuel Supply Equity |
| $ | 4,022 |
|
| $ | — |
|
| $ | — |
|
| $ | 4,022 |
| ||||||||||||||||
Operating income (loss) |
| $ | 27,030 |
|
| $ | 1,893 |
|
| $ | (18,930 | ) |
| $ | 9,993 |
|
| $ | 33,244 |
|
| $ | 953 |
|
| $ | (26,035 | ) |
| $ | 8,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Six Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Revenues from fuel sales to external customers |
| $ | 1,379,045 |
|
| $ | 1,001,567 |
|
| $ | — |
|
| $ | 2,380,612 |
| ||||||||||||||||
Intersegment revenues from fuel sales |
|
| 837,424 |
|
|
| — |
|
|
| (837,424 | ) |
|
| — |
| ||||||||||||||||
Revenues from food and merchandise sales |
|
| — |
|
|
| 136,281 |
|
|
| — |
|
|
| 136,281 |
| ||||||||||||||||
Rent income |
|
| 35,316 |
|
|
| 6,160 |
|
|
| — |
|
|
| 41,476 |
| ||||||||||||||||
Other revenue |
|
| 3,593 |
|
|
| 6,282 |
|
|
| — |
|
|
| 9,875 |
| ||||||||||||||||
Total revenues |
| $ | 2,255,378 |
|
| $ | 1,150,290 |
|
| $ | (837,424 | ) |
| $ | 2,568,244 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Operating income (loss) |
| $ | 81,121 |
|
| $ | 4,096 |
|
| $ | (54,426 | ) |
| $ | 30,791 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Six Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Revenues from fuel sales to external customers |
| $ | 928,592 |
|
| $ | 457,612 |
|
| $ | — |
|
| $ | 1,386,204 |
| ||||||||||||||||
Intersegment revenues from fuel sales |
|
| 343,330 |
|
|
| — |
|
|
| (343,330 | ) |
|
| — |
| ||||||||||||||||
Revenues from food and merchandise sales |
|
| — |
|
|
| 83,047 |
|
|
| — |
|
|
| 83,047 |
| ||||||||||||||||
Rent income |
|
| 35,909 |
|
|
| 5,425 |
|
|
| — |
|
|
| 41,334 |
| ||||||||||||||||
Other revenue |
|
| 1,863 |
|
|
| 4,170 |
|
|
| — |
|
|
| 6,033 |
| ||||||||||||||||
Total revenues |
| $ | 1,309,694 |
|
| $ | 550,254 |
|
| $ | (343,330 | ) |
| $ | 1,516,618 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Operating income (loss) |
| $ | 58,149 |
|
| $ | 1,246 |
|
| $ | (52,097 | ) |
| $ | 7,298 |
|
|
| Wholesale |
|
| Retail |
|
| Unallocated |
|
| Consolidated |
| ||||
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from fuel sales to external customers |
| $ | 1,122,903 |
|
| $ | 272,289 |
|
| $ | — |
|
| $ | 1,395,192 |
|
Intersegment revenues from fuel sales |
|
| 200,147 |
|
|
| — |
|
|
| (200,147 | ) |
|
| — |
|
Revenues from food and merchandise sales |
|
|
|
|
|
| 80,077 |
|
|
| — |
|
|
| 80,077 |
|
Rent income |
|
| 60,008 |
|
|
| 5,082 |
|
|
| — |
|
|
| 65,090 |
|
Other revenue |
|
| 1,808 |
|
|
| — |
|
|
| — |
|
|
| 1,808 |
|
Total revenues |
| $ | 1,384,866 |
|
| $ | 357,448 |
|
| $ | (200,147 | ) |
| $ | 1,542,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from CST Fuel Supply Equity |
| $ | 11,185 |
|
| $ | — |
|
| $ | — |
|
| $ | 11,185 |
|
Operating income (loss) |
| $ | 80,863 |
|
| $ | 4,092 |
|
| $ | (64,373 | ) |
| $ | 20,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from fuel sales to external customers |
| $ | 958,943 |
|
| $ | 253,057 |
|
| $ | — |
|
| $ | 1,212,000 |
|
Intersegment revenues from fuel sales |
|
| 178,772 |
|
|
| — |
|
|
| (178,772) |
|
|
| — |
|
Revenues from food and merchandise sales |
|
| — |
|
|
| 95,253 |
|
|
| — |
|
|
| 95,253 |
|
Rent income |
|
| 55,540 |
|
|
| 4,094 |
|
|
| — |
|
|
| 59,634 |
|
Other revenue |
|
| 1,447 |
|
|
| — |
|
|
| — |
|
|
| 1,447 |
|
Total revenues |
| $ | 1,194,702 |
|
| $ | 352,404 |
|
| $ | (178,772 | ) |
| $ | 1,368,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from CST Fuel Supply Equity |
| $ | 12,318 |
|
| $ | — |
|
| $ | — |
|
|
| 12,318 |
|
Operating income (loss) |
| $ | 76,971 |
|
| $ | 6,291 |
|
| $ | (57,992 | ) |
| $ | 25,270 |
|
Receivables relating to the revenue streams above are as follows (in thousands):
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Receivables from fuel and merchandise sales |
| $ | 46,277 |
|
| $ | 27,932 |
|
Receivables for rent and other lease-related charges |
|
| 3,373 |
|
|
| 6,548 |
|
Total accounts receivable |
| $ | 49,650 |
|
| $ | 34,480 |
|
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 such revenue is not material. Receivables from fuel are recognized on a per-gallon rate and are generally collected within 10 days of delivery.
16
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The balance of unamortized costs incurred to obtain certain contracts with customers was $11.2 million and $11.0 million at June 30, 2022 and December 31, 2021, respectively. Amortization of such costs is recorded against operating revenues and amounted to $0.4 million for the three months ended June 30, 2022 and 2021 and $0.9 million and $0.7 million for the six months ended June 30, 2022 and 2021, respectively.
Receivables from rent and other lease-related charges are generally collected at the beginning of the month.
Note 15.17. SUPPLEMENTAL CASH FLOW INFORMATION
In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in currentoperating assets and current liabilities as follows (in thousands):
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Decrease (increase): |
|
|
|
|
|
| ||
Accounts receivable |
| $ | (15,125 | ) |
| $ | (6,741 | ) |
Accounts receivable from related parties |
|
| (45 | ) |
|
| (216 | ) |
Inventories |
|
| (10,403 | ) |
|
| (1,121 | ) |
Other current assets |
|
| 963 |
|
|
| (2,682 | ) |
Other assets |
|
| (868 | ) |
|
| (1,379 | ) |
Increase (decrease): |
|
|
|
|
|
| ||
Accounts payable |
|
| 20,178 |
|
|
| 6,940 |
|
Accounts payable to related parties |
|
| (30 | ) |
|
| 939 |
|
Motor fuel and sales taxes payable |
|
| (1,260 | ) |
|
| 2,585 |
|
Accrued expenses and other current liabilities |
|
| (112 | ) |
|
| 1,541 |
|
Other long-term liabilities |
|
| 2,276 |
|
|
| 2,275 |
|
Changes in operating assets and liabilities, net of acquisitions |
| $ | (4,426 | ) |
| $ | 2,141 |
|
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Decrease (increase): |
|
|
|
|
|
|
|
|
Accounts receivable |
| $ | 5,183 |
|
| $ | 941 |
|
Accounts receivable from related parties |
|
| (1,492 | ) |
|
| (2,281 | ) |
Inventories |
|
| 674 |
|
|
| 5,515 |
|
Other current assets |
|
| 166 |
|
|
| (1,249 | ) |
Other assets |
|
| (2,509 | ) |
|
| (3,484 | ) |
Increase (decrease): |
|
|
|
|
|
|
|
|
Accounts payable |
|
| 2,882 |
|
|
| 2,055 |
|
Accounts payable to related parties |
|
| 5,576 |
|
|
| (1,021 | ) |
Motor fuel taxes payable |
|
| (386 | ) |
|
| 1,117 |
|
Accrued expenses and other current liabilities |
|
| 3,270 |
|
|
| (1,644) |
|
Other long-term liabilities |
|
| 178 |
|
|
| 3,339 |
|
Changes in working capital, net of acquisitions |
| $ | 13,542 |
|
| $ | 3,288 |
|
The above changes in currentoperating assets and current 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):
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash paid for interest |
| $ | 12,491 |
|
| $ | 6,709 |
|
Cash paid for taxes, net of refunds received |
|
| (2 | ) |
|
| 1,570 |
|
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Cash paid for interest |
| $ | 19,185 |
|
| $ | 15,355 |
|
Cash paid for income taxes, net of refunds received |
| $ | 822 |
|
| $ | 1,366 |
|
Supplemental schedule of non-cash investing and financing activities (in thousands):
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Accrued capital expenditures |
| $ | 1,226 |
|
| $ | 996 |
|
Lease liabilities arising from obtaining right-of-use assets |
|
| 9,182 |
|
|
| 9,156 |
|
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Sale of property and equipment in Section 1031 like-kind exchange transactions |
| $ | 260 |
|
| $ | 1,300 |
|
Issuance of capital lease obligations and recognition of asset retirement obligation related to Getty lease |
| $ | 740 |
|
| $ | 1,240 |
|
Amended Omnibus Agreement fees settled in our common units |
| $ | 10,880 |
|
| $ | 8,290 |
|
17
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the nine months ended September 30, 2017, the Partnership recognized a $5.3 million charge for severance and benefit costs associated with certain officers and other employees of CST Services who provided services to the Partnership and who terminated employment upon the consummation of the Merger, which constituted a change in control, as defined in the EICP and CST’s severance plans. Such costs are included in general and administrative expenses and were paid by CST in the third quarter of 2017. Accounts payable to related parties includes these costs as we will reimburse CST.
In addition, certain participants in the EICP received retention bonuses that will be paid in annual installments that began in July 2017 and will continue through July 2019. The Partnership recorded a $1.0 million charge during the nine months ended September 30, 2017 in connection with the payments made by CST in July 2017, which were included in general and administrative expenses. In addition, the Partnership recognized a $0.3 million charge for the three and nine months ended September 30, 2017 for the payments expected to be made in July 2018 and July 2019. The Partnership anticipates recognizing future charges totaling $1.2 million over the remaining retention period, of which $0.3 million, $0.8 million and $0.1 million is anticipated to be recognized in 2017, 2018 and 2019, respectively.
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report includes forward-looking statements including inwithin the section entitled “Management’s Discussionmeaning of the Private Securities Litigation Reform Act of 1995 that involve risks and Analysis of Financial Condition and Results of Operations.”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 management’sour current viewsplans and assumptions,expectations and involve risks and uncertainties that could potentially affect expectedactual results. These forward-looking statements include, among other things, statements regarding:
future retail and wholesale gross profits, including gasoline, diesel and convenience store merchandise gross profits;
our anticipated level of capital investments, primarily through acquisitions, and the effect of these capital investments on our results of operations;
anticipated trends in the demand for, and volumes sold of, gasoline and diesel in the regions where we operate;
volatility in the equity and credit markets limiting access to capital markets;
our ability to integrate acquired businesses and to transition retail sites to dealer operated sites;
expectations regarding environmental, tax and other regulatory initiatives; and
the effect of general economic and other conditions on our business.
In general, we based the forward-looking statements included in this quarterly 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 as they involve assumptions that, while made in good faith, may prove to be incorrect, 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:
Couche-Tard’sthe Topper Group’s business strategy and operations and Couche-Tard’sthe Topper Group’s conflicts of interest with us;
availability of cash flow to pay the current quarterly distributions on our common units;
the availability and cost of competing motor fuels;
motor fuel price volatility, including as a result of the conflict in Ukraine, or a reduction in demand for motor fuels;
competition in the industries and geographical areas in which we operate;
the consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
environmental compliance and remediation costs;
our liquidity, results of operations and financial condition;
failure to comply with applicable tax and other regulations or governmental policies;
future legislation and changes in regulations, governmental policies, immigration laws and restrictions or changes in enforcement or interpretations thereof;
future regulations and actions that could expand the non-exempt status of employees under the Fair Labor Standards Act;
future income tax legislation;
18
changes in energy policy;
increases in energy conservation efforts;
technological advances;
19
the impact of wars and acts of terrorism;
weather conditions or catastrophic weather-related damage;
earthquakes and other natural disasters;
hazards and risks associated with transporting and storing motor fuel;
unexpected environmental liabilities;
the outcome of pending or future litigation; and
our ability to comply with federal and state laws and regulations, including those related to environmental matters, the sale of alcohol, cigarettes and fresh foods, employment and health benefits, including the Affordable Care Act.
You should consider the areas of riskrisks and uncertainties described above and elsewhere in this report as well as those set forth herein and in the section entitled “Risk Factors” included 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 projectedanticipated 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:
CST’s MergerRecent Developments—This section provides information on the Merger.
Significant Factors Affecting Our Profitability—This section describes the significant impact on our results of operations caused by crude oil commodity price volatility, seasonality and acquisition and financing activities.
Results of Operations—This section provides an analysis of our results of operations, including the results of operations of our business segments, for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 and non-GAAP financial measures.
Liquidity and Capital Resources—This section provides a discussion of our financial condition and cash flows. It also includes a discussion of our debt, capital requirements, other matters impacting our liquidity and capital resources and an outlook for our business.
New Accounting Policies—This section describes new accounting pronouncements that we have already adopted, those that we are required to adopt in the future and those that became applicable in the current year as a result of new circumstances.
Critical Accounting Policies Involving Critical Accounting Estimates—This section describes the accounting policies and estimates that we consider most important for our business and that require significant judgment.
CST’s Merger19
CSTRecent Developments
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 primarily through 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 the Merger Agreement dated as of August 21, 2016,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 Circle K and Merger Sub. On June 28, 2017, Merger Sub merged with and into CST, at which time the separate corporate existence of Merger Sub ceased, and CST survived the Merger as an indirect,Preferred Issuance, on March 29, 2022, LGP Operations LLC, a wholly owned subsidiary of Circle K.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 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 Merger, Circle K indirectly owns allTerm Loan Facility until April 1, 2023.
See Note 13 to the financial statements for additional information on the preferred membership interests.
20
COVID-19 Pandemic
During the first quarter of 2020, an outbreak of a novel strain of coronavirus spread worldwide, including to the membership interestsU.S., posing public health risks that reached pandemic proportions. We experienced a sharp decrease in fuel volume in mid-to-late March 2020. Although fuel volumes largely recovered during the second half of 2020 and continued to recover in 2021 and 2022, we cannot predict the scope and severity with which COVID-19 will impact our General Partner, as well asbusiness. Sustained decreases in fuel volume, erosion of margin and/or volatility in fuel prices could have a 20.8% limited partner interest in the Partnershipmaterial adverse effect on our results of operations, cash flow, financial position and all of the IDRs of the Partnership. Circle K, through its indirect ownership interest in the sole member ofultimately our General Partner, has the ability to appoint all of the members of the Board of our General Partner and to control and manage the operations and activities of the Partnership. pay distributions.
20
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. We receive a fixed mark-up per gallon onFor approximately 87%61% of gallons sold to our customers.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 primarily DTW priced contracts, with our customers.including intersegment sales to the retail segment. These contracts provide for variable, market based pricing that results in motor fuel gross profit effects similar to retail motor fuel gross profits (as crude oil prices decline, motor fuel gross profit generally increases, as discussed in our Retail segment below). The increase in DTW gross profit results from the acquisition cost of wholesale motor fuel declining at a faster rate as compared to the rate retail motor fuel prices decline. Conversely, our DTW motor fuel gross profit declines when the cost of wholesale motor fuel increases at a faster rate as compared to the rate retail motor fuel prices increase.market-based pricing.
Regarding our supplier relationships, a majority of our total gallons purchased are subject to Terms Discounts.terms discounts. The dollar value of these discounts increases and decreases corresponding tovaries 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
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 and rapidly over short periods of time.
Changes in our average motor fuel selling price per gallon and gross margin for the periods ended September 30, 2017 and 2016 are directly related to the changes in crude oil and wholesale motor fuel prices over the same period.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.
We typically experience lower retail motor fuel gross profits in periods when the wholesale cost of motor fuel increases, and higher retail motor fuel gross profits in periods when the wholesale cost of motor fuel declines rapidly.
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.
Impact of Inflation
Inflation affects our financial performance by increasing certain components of our operating expenses and cost of goods sold. Operatingsold, such as fuel, merchandise, and credit card fees. Inflation also affects certain operating expenses, includesuch as labor costs, certain leases, and general and administrative expenses. While our Wholesalewholesale segment benefits from higher Terms Discountsterms discounts as a result of higher fuel costs, inflation could and recently has negatively impactimpacted our Retail segment as a resultcost of higher motor fuel, merchandisegoods sold and operating costs.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.
21
Acquisition and Financing Activity
Our results of operations and financial condition are also impacted by our acquisition and financing activities as summarized below.
On February 5, 2016, we purchased independent dealer and sub-wholesaler contracts from CST for $2.9 million.
On March 29, 2016,From late June 2021 through December 31, 2021, we closed on the acquisitionpurchase of Franchised Holiday Stores and company operated liquor stores from S/S/G Corporation for approximately $52.4 million, including working capital.
On September 27, 2016, we acquired the State Oil Assets located in the greater Chicago market for approximately $41.9 million, including working capital.
On December 21, 2016, we sold the real property at 17 fee103 sites acquired in the State Oil Assets acquisition for $25.0 million in proceeds, which were used to repay borrowings under the credit facility. We subsequently leased these sites back under a triple net lease agreement.
On September 6, 2017, we sold two properties as a result of the FTC’s requirements associated with the Merger for $6.7 million.
On September 27, 2017, as approved by the conflicts committee of our Board, we sold 28 properties to DMR for $16.6 million. These sites were generally sites at which we did not supply fuel or represented vacant land.
Separation Benefits106-site acquisition from 7-Eleven, and Retention Bonuses
During the nine months ended September 30, 2017, the Partnership recognized a $5.3 million charge for severance and benefit costs associated with certain officers and other employees of CST Services who provided services to the Partnership and who terminated employment upon the consummation of the Merger, which constituted a change in control, as defined in the EICP and CST’s severance plans. Such costs are included in general and administrative expenses and were paid by CST in the third quarter of 2017. Accounts payable to related parties includes these costs as we will reimburse CST.
In addition, certain participants in the EICP received retention bonuses that will be paid in annual installments that began in July 2017 and will continue through July 2019. The Partnership recorded a $1.0 million charge during the nine months ended September 30, 2017 in connection with the payments made by CST in July 2017, which were included in general and administrative expenses. In addition, the Partnership recognized a $0.3 million charge for the three and nine months ended September 30, 2017 the payments expected to be made in July 2018 and July 2019. The Partnership anticipates recognizing future charges totaling $1.2 million over the remaining retention period, of which $0.3 million, $0.8 million and $0.1 million is anticipated to be recognized in 2017, 2018 and 2019, respectively.
Acquisition of Jet-Pep Assets
On August 4, 2017,2021, we entered into a definitive asset purchasenew credit agreement (the “Purchase Agreement”), by and among (i) CrossAmerica, (ii) Jet-Pep, Inc.,amended our existing credit facility as further described in Notes 3 and (iii) other persons listed as signatories in the Purchase Agreement (collectively the “Sellers”). Pursuant12 to the Purchase Agreement,financial statements. In February 2022, we have agreed to purchaseclosed on the real property and the fuel supply business of 92 fee simple sites, and the leasehold interestfinal three properties.
The closing of the transaction is expected to occur in the fourth quarter of 2017, and is subjectNote 13 to the satisfaction or waiver of customary closing conditions. The Purchase Agreement contains customary representations, warranties, agreements and obligations of the parties, and termination and closing conditions. We and the Sellers have generally agreed to indemnify each other for breaches of the representations, warranties and covenants contained in the Purchase Agreement, subject to survival period limitations and a general indemnification cap for the Sellers in the amount of $6.5 million in the aggregate for Sellers’ liabilities under the Purchase Agreement and the Circle K Agreements.
22
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 June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating revenues |
| $ | 1,475,033 |
|
| $ | 859,334 |
|
| $ | 2,568,244 |
|
| $ | 1,516,618 |
|
Costs of sales |
|
| 1,386,088 |
|
|
| 794,240 |
|
|
| 2,400,469 |
|
|
| 1,396,656 |
|
Gross profit |
|
| 88,945 |
|
|
| 65,094 |
|
|
| 167,775 |
|
|
| 119,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
| 42,216 |
|
|
| 31,070 |
|
|
| 84,325 |
|
|
| 60,473 |
|
General and administrative expenses |
|
| 5,680 |
|
|
| 6,876 |
|
|
| 12,163 |
|
|
| 14,526 |
|
Depreciation, amortization and accretion expense |
|
| 19,919 |
|
|
| 19,583 |
|
|
| 40,194 |
|
|
| 37,614 |
|
Total operating expenses |
|
| 67,815 |
|
|
| 57,529 |
|
|
| 136,682 |
|
|
| 112,613 |
|
(Loss) gain on dispositions and lease terminations, net |
|
| (58 | ) |
|
| 597 |
|
|
| (302 | ) |
|
| (51 | ) |
Operating income |
|
| 21,072 |
|
|
| 8,162 |
|
|
| 30,791 |
|
|
| 7,298 |
|
Other income, net |
|
| 102 |
|
|
| 204 |
|
|
| 232 |
|
|
| 292 |
|
Interest expense |
|
| (7,321 | ) |
|
| (3,870 | ) |
|
| (13,982 | ) |
|
| (7,367 | ) |
Income before income taxes |
|
| 13,853 |
|
|
| 4,496 |
|
|
| 17,041 |
|
|
| 223 |
|
Income tax benefit |
|
| (113 | ) |
|
| (293 | ) |
|
| (1,972 | ) |
|
| (599 | ) |
Net income |
|
| 13,966 |
|
|
| 4,789 |
|
|
| 19,013 |
|
|
| 822 |
|
Accretion of preferred membership interests |
|
| 563 |
|
|
| — |
|
|
| 563 |
|
|
| — |
|
Net income available to limited partners |
| $ | 13,403 |
|
| $ | 4,789 |
|
| $ | 18,450 |
|
| $ | 822 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Operating revenues |
| $ | 544,092 |
|
| $ | 487,950 |
|
| $ | 1,542,167 |
|
| $ | 1,368,334 |
|
Cost of sales |
|
| 502,517 |
|
|
| 448,812 |
|
|
| 1,421,524 |
|
|
| 1,251,491 |
|
Gross profit |
|
| 41,575 |
|
|
| 39,138 |
|
|
| 120,643 |
|
|
| 116,843 |
|
Income from CST Fuel Supply equity interests |
|
| 3,752 |
|
|
| 4,022 |
|
|
| 11,185 |
|
|
| 12,318 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
| 15,371 |
|
|
| 14,224 |
|
|
| 46,853 |
|
|
| 45,754 |
|
General and administrative expenses |
|
| 5,994 |
|
|
| 6,142 |
|
|
| 23,731 |
|
|
| 18,068 |
|
Depreciation, amortization and accretion expense |
|
| 14,049 |
|
|
| 13,432 |
|
|
| 42,675 |
|
|
| 40,594 |
|
Total operating expenses |
|
| 35,414 |
|
|
| 33,798 |
|
|
| 113,259 |
|
|
| 104,416 |
|
Gain on sales of assets, net |
|
| 2,371 |
|
|
| 631 |
|
|
| 2,013 |
|
|
| 525 |
|
Operating income |
|
| 12,284 |
|
|
| 9,993 |
|
|
| 20,582 |
|
|
| 25,270 |
|
Other income, net |
|
| 121 |
|
|
| (59) |
|
|
| 366 |
|
|
| 375 |
|
Interest expense |
|
| (7,102 | ) |
|
| (5,634 | ) |
|
| (20,599 | ) |
|
| (16,403 | ) |
Income before income taxes |
|
| 5,303 |
|
|
| 4,300 |
|
|
| 349 |
|
|
| 9,242 |
|
Income tax expense (benefit) |
|
| 966 |
|
|
| 1,308 |
|
|
| (1,686 | ) |
|
| 851 |
|
Net income |
|
| 4,337 |
|
|
| 2,992 |
|
|
| 2,035 |
|
|
| 8,391 |
|
Net income (loss) attributable to noncontrolling interests |
|
| 4 |
|
|
| 3 |
|
|
| (1 | ) |
|
| 9 |
|
Net income attributable to limited partners |
|
| 4,333 |
|
|
| 2,989 |
|
|
| 2,036 |
|
|
| 8,382 |
|
IDR distributions |
|
| (1,115 | ) |
|
| (877 | ) |
|
| (3,162 | ) |
|
| (2,456 | ) |
Net income (loss) available to limited partners |
| $ | 3,218 |
|
| $ | 2,112 |
|
| $ | (1,126 | ) |
| $ | 5,926 |
|
Three Months Ended SeptemberJune 30, 20172022 Compared to Three Months Ended SeptemberJune 30, 20162021
Consolidated Results
Operating revenues increased $56.1$616 million or 12%, while(72%) and gross profit increased $2.4$24 million or 6%(37%).
Operating revenues
Significant items impacting these results prior to the elimination of intercompany revenues were:
A $59.5$561 million or 14%,(75%) increase in our Wholesalewholesale segment revenues primarily attributable to thea 64% increase in crude oil prices. Thethe average daily spot price of WTI crude oil increased 7% to $48.15$108.83 per barrel for the thirdsecond quarter of 2017,2022, compared to $44.85$66.19 per barrel for the thirdsecond quarter of 2016. The wholesale price of motor fuel is highly correlated to the price of crude oil, although our average selling price increased 14% from the third quarter of 2016 to the third quarter of 2017. 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.”
A $3.1 million, or 3%, increase in our Retail segment revenues primarily attributable to an increase in crude oil prices, partially offset by the conversion of company operated retail sites to lessee dealer sites. 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.”
23
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 $6.4 million or 10%, primarily attributable to the increase in wholesale motor fuel prices discussed above.
Cost of sales
Cost of sales increased $53.7 million or 12% as a result of the increase in wholesale motor fuel prices. See “Results of Operations—Segment Results” for additional gross profit analyses.
Operating expenses
See “Results of Operations—Segment Results” for additional operating expenses analyses.
General and administrative expenses
General and administrative expenses decreased $0.1 million primarily attributable to a $1.1 million reduction in costs as a result of headcount and salary reductions effective at the time of the Merger, a $0.5 million reduction in equity compensation expense as a result of fewer awards outstanding, and a $0.5 million reduction in acquisition costs, partially offset by a $1.7 million charge recorded in the third quarter of 2017 related to a court ruling in favor of a former executive’s claim to benefits under the EICP change in control provisions and a $0.2 million increase in severance expense.
Gain on sales of assets, net
During the third quarter of 2017, we recorded a $2.2 million gain on the sale of two properties as required by the FTC in connection with the Merger and a $0.5 million loss on the sale of 28 properties to DMR. We also recorded an $0.8 million gain related to the renewal of a contract by DMS with one of its customers, which triggered an earn out payment to be paid by DMS to us in connection with a contract entered into with DMS at the time of CST’s acquisition of our General Partner in October 2014.
Interest expense
Interest expense increased $1.5 million due to an increase in the average interest rate charged on our credit facility borrowings from 3.5% to 4.3% and additional borrowings to fund the State Oil Assets acquisition in September 2016. In addition, we incurred $0.4 million of interest expense in the third quarter of 2017 related to our sale leaseback executed in December 2016.
Income tax expense
We recorded income tax expense of $1.0 million and $1.3 million for the three months ended September 30, 2017 and 2016, respectively. The decrease in income tax expense was primarily due to a decline in the income generated by our corporate subsidiaries.
24
Nine Months Ended September 30,2017 Compared to Nine Months Ended September 30,2016
Consolidated Results
Operating revenues increased $173.8 million, or 13%, while gross profit increased $3.8 million, or 3.3%.
Operating revenues
Significant items impacting these results prior to the elimination of intercompany revenues were:
A $190.2 million, or 16%, increase in our Wholesale segment revenues primarily attributable to the increase in crude oil prices. The average daily spot price of WTI crude oil increased 19% to $49.28 per barrel for the nine months ended September 30, 2017, compared to $41.35 per barrel for the nine months ended September 30, 2016.2021. The wholesale price of motor fuel is highly correlated to the price of crude oil. 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.”
22
A $5.0$349 million or 1%,(113%) increase in our Retailretail segment revenues primarily attributable to a 55% increase in the average retail fuel price from the second quarter of 2021 to the second quarter of 2022 primarily due to the increase in crude oilwholesale motor fuel prices largely offsetas noted above. Volume also increased 43% for the second quarter of 2022 compared to the second quarter of 2021 as a result of the acquisition of assets from 7-Eleven. Lastly, merchandise revenues increased $29 million (64%) driven by conversionthe acquisition of company operated retail sites to lessee dealer sites. 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.”
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 Wholesalewholesale segment to our Retailretail 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 $21.4$295 million or 12%(148%), primarily attributable to the increase in wholesale motor fuel prices discussed above.and the incremental intersegment revenues generated by the company operated sites acquired in the acquisition of assets from 7-Eleven.
Cost of sales
Cost of sales increased $170.0$592 million or 14% as(75%), which was a result of the increase in wholesale motor fuel prices.prices and the acquisition of assets from 7-Eleven discussed above.
Gross profit
Gross profit increased $24 million (37%), which was primarily driven by increases in motor fuel, merchandise and other gross profit due to the acquisition of assets from 7-Eleven along with realizing a higher margin per gallon. 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 $1.2 million (17%) primarily due to a $2.0 million decrease in acquisition-related costs driven by a reduction in legal fees incurred in connection with the acquisition of assets from 7-Eleven as compared to the second quarter of 2021, partially offset by higher software and information technology consulting costs, recruiting costs and management fees.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $0.3 million (2%) 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 offset by a $2.4 million decrease in impairment charges as compared to the same period of 2021 related to our ongoing real estate rationalization effort and the resulting reclassification of these sites to assets held for sale.
Gain on dispositions and lease terminations, net
During the three months ended June 30, 2022, we recorded net losses on lease terminations and asset disposals, partially offset by a $0.5 million net gain in connection with our ongoing real estate rationalization effort.
During the three months ended June 30, 2021, we recorded a $1.1 million net gain in connection with our ongoing real estate rationalization effort, partially offset by net losses on lease terminations and asset disposals.
23
Interest expense
Interest expense increased $3.5 million (89%), primarily driven by $1.4 million in interest expense incurred on the JKM Credit Facility along with a $0.4 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 $1.6 million more in interest expense on the CAPL Credit Facility (net of the impact of the interest rate swaps) due both to an increase in the LIBOR rate and the higher outstanding balance driven by the borrowings to fund a portion of the purchase price of the acquisition of assets from 7-Eleven.
Income tax benefit
We recorded income tax benefits of $0.1 million and $0.3 million for the three months ended June 30, 2022 and 2021, respectively, driven by losses incurred by our taxable subsidiaries.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Consolidated Results
Operating revenues increased $1.1 billion (69%) and gross profit increased $48 million (40%).
Operating revenues
Significant items impacting these results prior to the elimination of intercompany 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 $494 million (144%), primarily attributable to the increase in wholesale fuel prices and the incremental intersegment revenues generated by the company operated sites acquired in the acquisition of assets from 7-Eleven.
Cost of sales
Cost of sales increased $1.0 billion (72%), which was a result of the increase in wholesale motor fuel prices and the acquisition of assets from 7-Eleven discussed above.
Gross profit
Gross profit increased $48 million (40%), which was primarily driven by increases in motor fuel, merchandise and other gross profit due to the acquisition of assets from 7-Eleven along with realizing a higher margin per gallon. See “Results of Operations—Segment Results” for additional operatinggross profit analyses.
24
Operating expenses
See “Results of Operations—Segment Results” for analyses.
General and administrative expenses
General and administrative expenses increased $5.7decreased $2.4 million (16%) primarily attributabledue to a $6.8$3.5 million charge recorded upon closingdecrease in acquisition-related costs driven by a reduction in legal fees incurred in connection with the acquisition of the Merger for severance and benefit costs for certain terminated officers and other employees of CST Services who provided servicesassets from 7-Eleven as compared to the Partnership and retention bonuses to certain EICP participants and a $1.7 million charge related to a court ruling in favor of a former executive’s claim to benefits under the EICP change in control provisions,six months ended June 30, 2021, partially offset by a $1.5 million decrease driven by the integration of prior year acquisitionshigher software and other cost savings initiativesinformation technology consulting costs, recruiting costs and a $1.3 million decrease in management fees charged by CST as a result of headcount and salary reductions effective at the time of the Merger.fees.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $1.7$2.6 million (7%) 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 offset by a $4.0 million decrease in impairment charges as compared to the same period of 2021 related to our ongoing real estate rationalization effort and the resulting reclassification of these sites to assets held for sale.
Gain (loss) on dispositions and lease terminations, net
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.
During the six months ended June 30, 2021, we recorded net losses on lease terminations and asset disposals, partially offset by a $1.1 million gain in connection with our ongoing real estate rationalization effort.
Interest expense
Interest expense increased $6.6 million (90%), primarily driven by our recent acquisitions.
Gain on sales of assets, net
During the nine months ended September 30, 2017, we recorded a $2.2$2.6 million gainin interest expense incurred on the sale of two properties as required by the FTC in connectionJKM Credit Facility along with the Merger and a $0.5 million loss on the sale of 28 properties to DMR. We also recorded a $0.8 million gain relatedincrease in amortization of deferred financing costs as a result of entering into the JKM Credit Facility and the amendment to the renewalCAPL Credit Facility. In addition, we incurred $3.2 million more in interest expense on the CAPL Credit Facility (net of a contract by DMS with onethe impact of its customers, which triggered an earn out payment to be paid by DMS to us in connection with a contract entered into with DMS at the time of CST’s acquisition of our General Partner in October 2014.
25
Interest expense increased $4.2 millioninterest rate swaps) due both to an increase in the average interestLIBOR rate charged on our credit facility borrowings from 3.5% to 4.1% and additionalthe higher outstanding balance driven by the borrowings to fund our recent acquisitions. In addition, we incurred $1.2 milliona portion of interest expense in 2017 related to our sale leaseback executed in December 2016.the purchase price of the acquisition of assets from 7-Eleven.
Income tax benefit
We recorded an income tax benefitbenefits of $1.7$2.0 million and income tax expense of $0.9$0.6 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively. The benefit in 2017 was primarily due to an increase in the loss generated2021, respectively, driven by losses incurred by our corporatetaxable subsidiaries.
Segment Results
We present the results of operations of our segments consistent with how our management views the business. Therefore, our segments are presented before intersegment eliminations (which consist of motor fuel sold by our Wholesalewholesale segment to our Retailretail segment). These comparisons are not necessarily indicative of future results.
2625
The following table highlights the results of operations and certain operating metrics of our Wholesalewholesale segment. The narrative following these tables provides an analysis of the results of operations of that segment (thousands of dollars, except for the number of distribution sites and per gallon amounts):
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Motor fuel–third party |
| $ | 19,034 |
|
| $ | 18,529 |
|
| $ | 35,219 |
|
| $ | 34,052 |
|
Motor fuel–intersegment and related party |
|
| 21,467 |
|
|
| 11,961 |
|
|
| 38,086 |
|
|
| 17,690 |
|
Motor fuel gross profit |
|
| 40,501 |
|
|
| 30,490 |
|
|
| 73,305 |
|
|
| 51,742 |
|
Rent gross profit |
|
| 12,646 |
|
|
| 12,973 |
|
|
| 24,985 |
|
|
| 25,466 |
|
Other revenues |
|
| 1,807 |
|
|
| 729 |
|
|
| 3,593 |
|
|
| 1,863 |
|
Total gross profit |
|
| 54,954 |
|
|
| 44,192 |
|
|
| 101,883 |
|
|
| 79,071 |
|
Operating expenses |
|
| (10,690 | ) |
|
| (10,948 | ) |
|
| (20,762 | ) |
|
| (20,922 | ) |
Operating income |
| $ | 44,264 |
|
| $ | 33,244 |
|
| $ | 81,121 |
|
| $ | 58,149 |
|
Motor fuel distribution sites (end of period): (a) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Motor fuel–third party |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Independent dealers (b) |
|
| 637 |
|
|
| 675 |
|
|
| 637 |
|
|
| 675 |
|
Lessee dealers (c) |
|
| 645 |
|
|
| 651 |
|
|
| 645 |
|
|
| 651 |
|
Total motor fuel distribution–third party sites |
|
| 1,282 |
|
|
| 1,326 |
|
|
| 1,282 |
|
|
| 1,326 |
|
Motor fuel–intersegment and related party |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commission agents (Retail segment) (c) |
|
| 199 |
|
|
| 202 |
|
|
| 199 |
|
|
| 202 |
|
Company operated retail sites (Retail segment) (d) |
|
| 253 |
|
|
| 152 |
|
|
| 253 |
|
|
| 152 |
|
Total motor fuel distribution–intersegment and |
|
| 452 |
|
|
| 354 |
|
|
| 452 |
|
|
| 354 |
|
Motor fuel distribution sites (average during the period): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Motor fuel-third party distribution |
|
| 1,289 |
|
|
| 1,328 |
|
|
| 1,295 |
|
|
| 1,333 |
|
Motor fuel-intersegment and related party distribution |
|
| 454 |
|
|
| 353 |
|
|
| 454 |
|
|
| 355 |
|
Total motor fuel distribution sites |
|
| 1,743 |
|
|
| 1,681 |
|
|
| 1,749 |
|
|
| 1,688 |
|
Volume of gallons distributed (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Third party |
|
| 214,413 |
|
|
| 242,392 |
|
|
| 418,328 |
|
|
| 456,100 |
|
Intersegment and related party |
|
| 128,425 |
|
|
| 89,233 |
|
|
| 244,754 |
|
|
| 167,305 |
|
Total volume of gallons distributed |
|
| 342,838 |
|
|
| 331,625 |
|
|
| 663,082 |
|
|
| 623,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wholesale margin per gallon |
| $ | 0.118 |
|
| $ | 0.092 |
|
| $ | 0.111 |
|
| $ | 0.083 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel–third party |
| $ | 8,757 |
|
| $ | 8,157 |
|
| $ | 25,659 |
|
| $ | 21,283 |
|
Motor fuel–intersegment and related party |
|
| 6,485 |
|
|
| 6,086 |
|
|
| 17,820 |
|
|
| 19,004 |
|
Motor fuel gross profit |
|
| 15,242 |
|
|
| 14,243 |
|
|
| 43,479 |
|
|
| 40,287 |
|
Rent and other |
|
| 16,074 |
|
|
| 14,263 |
|
|
| 48,740 |
|
|
| 43,162 |
|
Total gross profit |
|
| 31,316 |
|
|
| 28,506 |
|
|
| 92,219 |
|
|
| 83,449 |
|
Income from CST Fuel Supply equity(a) |
|
| 3,752 |
|
|
| 4,022 |
|
|
| 11,185 |
|
|
| 12,318 |
|
Operating expenses |
|
| (7,535 | ) |
|
| (5,498 | ) |
|
| (22,541 | ) |
|
| (18,796 | ) |
Adjusted EBITDA(b) |
| $ | 27,533 |
|
| $ | 27,030 |
|
| $ | 80,863 |
|
| $ | 76,971 |
|
Motor fuel distribution sites (end of period):(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel–third party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent dealers(d) |
|
| 384 |
|
|
| 404 |
|
|
| 384 |
|
|
| 404 |
|
Lessee dealers(e) |
|
| 439 |
|
|
| 420 |
|
|
| 439 |
|
|
| 420 |
|
Total motor fuel distribution–third party sites |
|
| 823 |
|
|
| 824 |
|
|
| 823 |
|
|
| 824 |
|
Motor fuel–intersegment and related party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DMS (related party)(f) |
|
| 146 |
|
|
| 179 |
|
|
| 146 |
|
|
| 179 |
|
CST (related party) |
|
| 43 |
|
|
| 43 |
|
|
| 43 |
|
|
| 43 |
|
Commission agents (Retail segment)(g) |
|
| 82 |
|
|
| 67 |
|
|
| 82 |
|
|
| 67 |
|
Company operated retail sites (Retail segment) |
|
| 70 |
|
|
| 75 |
|
|
| 70 |
|
|
| 75 |
|
Total motor fuel distribution–intersegment and related party sites |
|
| 341 |
|
|
| 364 |
|
|
| 341 |
|
|
| 364 |
|
Motor fuel distribution sites (average during the period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel-third party distribution |
|
| 823 |
|
|
| 749 |
|
|
| 822 |
|
|
| 724 |
|
Motor fuel-intersegment and related party distribution |
|
| 344 |
|
|
| 366 |
|
|
| 355 |
|
|
| 387 |
|
Total motor fuel distribution sites |
|
| 1,167 |
|
|
| 1,115 |
|
|
| 1,177 |
|
|
| 1,111 |
|
Volume of gallons distributed (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party |
|
| 169,877 |
|
|
| 163,558 |
|
|
| 491,471 |
|
|
| 461,474 |
|
Intersegment and related party |
|
| 96,312 |
|
|
| 103,563 |
|
|
| 279,649 |
|
|
| 307,720 |
|
Total volume of gallons distributed |
|
| 266,189 |
|
|
| 267,121 |
|
|
| 771,120 |
|
|
| 769,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale margin per gallon |
| $ | 0.057 |
|
| $ | 0.053 |
|
| $ | 0.056 |
|
| $ | 0.052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2726
Three Months Ended SeptemberJune 30,20172022 Compared to Three Months Ended SeptemberJune 30,20162021
TheGross profit increased $10.8 million (24%) and operating income increased $11.0 million (33%). These results were drivenimpacted by:
Motor fuel gross profit
The $1.0$10.0 million or 7%(33%) increase in motor fuel gross profit was primarily due todriven by a higher28% increase in our average margin per gallon realized primarilycompared to the second quarter of 2021. Our DTW margins were higher for the second quarter of 2022 as compared to the second quarter of 2021 due to greater volatility in the price of crude oil in the second quarter of 2022 as compared to the second quarter of 2021. In addition, we benefited from higher DTW marginsterms discounts as a result of the movements inhigher crude prices throughout both periods and increased payment discounts and incentives due to the increase in motor fuel prices as a result of the increase in crude oil prices. The average daily spot price of WTI crude oil increased 7% to $48.1564% from $66.19 per barrel for the thirdsecond quarter of 2017, compared2021 to $44.85$108.83 per barrel for the thirdsecond quarter of 2016.2022. 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.”
Rent and other gross profit
Rent and other gross profit In addition, volume increased $1.8 million3% primarily as a result of our September 2016volume generated by the acquisition of the State Oil Assets, as well as converting company operated retail sites to lessee dealer sites throughout 2016 and 2017,assets from 7-Eleven, partially offset by 25 DMS sites being convertedlower volume in our base business (i.e., results excluding the results from the assets acquired from 7-Eleven).
Other revenues
Other revenues increased $1.1 million (148%) due primarily to commission agent sites in the fourth quarter of 2016, which resulted in the renthigher take-or-pay income from these 25 sites being included in the retail segment rather than the wholesale segment.related to minimum purchase quantities on our dealer contracts.
Income from CST Fuel Supply equityOperating expenses
The decline ofOperating expenses decreased $0.3 million was primarily attributable to a decrease in volume driven the impacts of Hurricane Harvey.
Operating expenses
Operating expenses increased $2.0 million(2%), primarily as a result of our September 2016 State Oil Assets acquisition, which is substantiallya decrease in maintenance and environmental costs, partially offset by an increase in rent income, as well as our conversion of company operated retail sitesmanagement fees relating to lessee dealer sites throughout 2016 and 2017.an increase in headcount.
NineSix Months Ended SeptemberJune 30, 20172022 Compared to NineSix Months Ended SeptemberJune 30, 20162021
Gross profit increased $22.8 million (29%) and operating income increased $23.0 million (40%). The results were driven by:
Motor fuel gross profit
The $3.2$21.6 million (42%) increase in motor fuel gross profit was primarily due todriven by a higher33% increase in our average margin per gallon realized primarilycompared to the six months ended June 30, 2021. Our DTW margins were higher for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 due to greater volatility in the price of crude oil in the first half of 2022 as compared to the first half of 2021. In addition, we benefited from higher DTW marginsterms discounts as a result of the movements inhigher crude prices throughout both periods and increased payment discounts and incentives due to the increase in motor fuel prices as a result of the increase in crude oil prices. The average daily spot price of WTI crude oil increased 19% to $49.2864% from $62.21 per barrel for the ninesix months ended SeptemberJune 30, 2017, compared2021 to $41.35$102.01 per barrel for the ninesix months ended SeptemberJune 30, 2016.2022. 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.”
Rent and other gross profit
Rent and other gross profit In addition, volume increased $5.6 million6% primarily as a result of our September 2016volume generated by the acquisition of the State Oil Assets, as well as converting company operated retail sites to lessee dealer sites throughout 2016 and 2017,assets from 7-Eleven, partially offset by 25 DMS sites being convertedlower volume in our base business (i.e., results excluding the results from the assets acquired from 7-Eleven).
Other revenues
Other revenues increased $1.7 million (93%) due primarily to commission agent sites in the fourth quarter of 2016, which resulted in the renthigher take-or-pay income from these 25 sites being included in the retail segment rather than the wholesale segment.related to minimum purchase quantities on our dealer contracts.
Income from CST Fuel Supply equity
The decline of $1.1 million was primarily attributable to CST’s July 2016 divestiture of its California and Wyoming retail sites and a decrease in volume driven the impacts of Hurricane Harvey.
Operating expenses
Operating expenses increased $3.7decreased $0.2 million (1%), primarily as a result of our September 2016 State Oil Assets acquisition, which is substantiallya decrease in maintenance and environmental costs, partially offset by an increase in rent income, as well as our conversion of company operated retail sitesmanagement fees relating to lessee dealer sites throughout 2016 and 2017.an increase in headcount.
2827
The following table highlights the results of operations and certain operating metrics of our Retailretail segment. The narrative following these tables provides an analysis of the results of operations of that segment (thousands of dollars,(in thousands, except for the number of retail sites):
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Motor fuel |
| $ | 9,329 |
|
| $ | 4,937 |
|
| $ | 19,825 |
|
| $ | 10,370 |
|
Merchandise |
|
| 20,165 |
|
|
| 11,969 |
|
|
| 36,847 |
|
|
| 22,333 |
|
Rent |
|
| 2,258 |
|
|
| 1,858 |
|
|
| 4,705 |
|
|
| 3,924 |
|
Other revenue |
|
| 3,194 |
|
|
| 2,311 |
|
|
| 6,282 |
|
|
| 4,170 |
|
Total gross profit |
|
| 34,946 |
|
|
| 21,075 |
|
|
| 67,659 |
|
|
| 40,797 |
|
Operating expenses |
|
| (31,526 | ) |
|
| (20,122 | ) |
|
| (63,563 | ) |
|
| (39,551 | ) |
Operating income |
| $ | 3,420 |
|
| $ | 953 |
|
| $ | 4,096 |
|
| $ | 1,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Retail sites (end of period): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commission agents (a) |
|
| 199 |
|
|
| 202 |
|
|
| 199 |
|
|
| 202 |
|
Company operated retail sites(b) |
|
| 253 |
|
|
| 152 |
|
|
| 253 |
|
|
| 152 |
|
Total system sites at the end of the period |
|
| 452 |
|
|
| 354 |
|
|
| 452 |
|
|
| 354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total system operating statistics: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average retail fuel sites during the period |
|
| 454 |
|
|
| 353 |
|
|
| 454 |
|
|
| 355 |
|
Volume of gallons sold |
|
| 128,815 |
|
|
| 89,806 |
|
|
| 244,855 |
|
|
| 168,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commission agents statistics: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average retail fuel sites during the period |
|
| 200 |
|
|
| 203 |
|
|
| 200 |
|
|
| 204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Company operated retail site statistics: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average retail fuel sites during the period |
|
| 254 |
|
|
| 150 |
|
|
| 254 |
|
|
| 151 |
|
Merchandise gross profit percentage |
|
| 27.3 | % |
|
| 26.5 | % |
|
| 27.0 | % |
|
| 26.9 | % |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel |
| $ | 2,042 |
|
| $ | 1,948 |
|
| $ | 5,281 |
|
| $ | 6,838 |
|
Merchandise and services |
|
| 7,008 |
|
|
| 7,614 |
|
|
| 19,558 |
|
|
| 23,362 |
|
Rent and other |
|
| 1,195 |
|
|
| 1,057 |
|
|
| 3,565 |
|
|
| 3,049 |
|
Total gross profit |
|
| 10,245 |
|
|
| 10,619 |
|
|
| 28,404 |
|
|
| 33,249 |
|
Operating expenses |
|
| (7,836 | ) |
|
| (8,726 | ) |
|
| (24,312 | ) |
|
| (26,958 | ) |
Acquisition-related costs |
|
| — |
|
|
| 142 |
|
|
| — |
|
|
| 142 |
|
Inventory fair value adjustments(a) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 91 |
|
Adjusted EBITDA(b) |
| $ | 2,409 |
|
| $ | 2,035 |
|
| $ | 4,092 |
|
| $ | 6,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sites (end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission agents(c) |
|
| 82 |
|
|
| 67 |
|
|
| 82 |
|
|
| 67 |
|
Company operated retail sites(d) |
|
| 71 |
|
|
| 78 |
|
|
| 71 |
|
|
| 78 |
|
Total system sites at the end of the period |
|
| 153 |
|
|
| 145 |
|
|
| 153 |
|
|
| 145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total system operating statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average retail fuel sites during the period(c)(d) |
|
| 153 |
|
|
| 142 |
|
|
| 162 |
|
|
| 155 |
|
Motor fuel sales (gallons per site per day) |
|
| 2,778 |
|
|
| 3,002 |
|
|
| 2,632 |
|
|
| 2,828 |
|
Motor fuel gross profit per gallon, net of credit card fees and commissions |
| $ | 0.052 |
|
| $ | 0.050 |
|
| $ | 0.045 |
|
| $ | 0.057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission agents statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average retail fuel sites during the period(c) |
|
| 82 |
|
|
| 66 |
|
|
| 90 |
|
|
| 66 |
|
Motor fuel gross profit per gallon, net of credit card fees and commissions |
| $ | 0.013 |
|
| $ | 0.014 |
|
| $ | 0.011 |
|
| $ | 0.016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operated retail site statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average retail fuel sites during the period(d) |
|
| 71 |
|
|
| 76 |
|
|
| 72 |
|
|
| 89 |
|
Motor fuel gross profit per gallon, net of credit card fees |
| $ | 0.093 |
|
| $ | 0.082 |
|
| $ | 0.083 |
|
| $ | 0.090 |
|
Merchandise and services gross profit percentage, net of credit card fees |
|
| 24.7 | % |
|
| 24.2 | % |
|
| 24.4 | % |
|
| 24.5 | % |
|
|
|
|
|
|
|
|
29
Three Months Ended SeptemberJune 30,20172022 Compared to Three Months Ended SeptemberJune 30,20162021
Gross profit declined $0.4increased $13.9 million while(66%) and operating expenses declined $0.9 million.
income increased $2.5 million (259%). These results were impacted by:
Gross profit
Our motor fuel gross profit increased $0.1$4.4 million (89%) attributable to a 5%43% increase in volume stemming from the sites acquired from 7-Eleven. In addition, we realized a higher margin per gallon for the three months ended June 30, 2022 as compared to the same period in 2021 as company operated sites comprised a resultgreater percentage of the movements in crude oil prices throughout the two periods. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices onoverall retail segment. Our Revenues, Cost of Sales and Gross Profit.”
Our merchandise and services gross profit declined $0.6 million as a result of the conversion of company operated retail sites to lessee dealer sites.
Our rent and other grossrevenues increased $8.2 million (68%) and $0.9 million (38%), respectively, driven by the sites acquired from 7-Eleven.
Operating expenses
Operating expenses increased $11.4 million (57%) primarily due to an $11.3 million increase driven by the sites acquired from 7-Eleven.
28
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Gross profit increased $0.1$26.9 million primarily from 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016, which resulted in the rent (66%) and operating income from these sites being included in the retail segment rather than the wholesale segment. In the second quarter of 2017, some of these 25 sites were converted to lessee dealer sites, which resulted in the rent income being included in the wholesale segment rather than the retail segment.
Operating expenses
The $0.9increased $2.9 million decline in operating expenses was attributable to the conversion of company operated retail sites to lessee dealer sites, partially offset by the impact of the 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016. In the second quarter of 2017, some of these 25 sites were converted to lessee dealer sites, which resulted in the operating expenses being included in the wholesale segment rather than the retail segment.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Gross profit declined $4.8 million, while operating expenses declined $2.6 million.
(229%). These results were impacteddriven by:
Gross profit
Our motor fuel gross profit decreased $1.6increased $9.5 million (91%) attributable to a 20% decrease46% increase in volume stemming from the sites acquired from 7-Eleven. In addition, we realized a higher margin per gallon for the six months ended June 30, 2022 as compared to the same period in 2021 as company operated sites comprised a resultgreater percentage of the movement in crude oil prices throughout the two periods. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices onoverall retail segment. Our Revenues, Cost of Sales and Gross Profit.”
Our merchandise and services gross profit declined $3.8and other revenues increased $14.5 million or 16% as a result of the conversion of company operated retail sites to lessee dealer sites, partially offset(65%) and $2.1 million (51%), respectively, driven by the incremental gross profit generatedsites acquired from 7-Eleven.
Operating expenses
Operating expenses increased $24.0 million (61%) primarily due to a $23.3 million increase driven by the March 2016 Franchised Holiday Stores acquisition.
Our rent and other gross profit increased $0.5 million primarilysites acquired from 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016, which resulted in the rent income from these sites being included in the retail segment rather than the wholesale segment. In the second quarter of 2017, some of these 25 sites were converted to lessee dealer sites, which resulted in the rent income being included in the wholesale segment rather than the retail segment.
Operating expenses
The $2.6 million decline in operating expenses was attributable to the conversion of company operated retail sites to lessee dealer sites, partially offset by the impact of the March 2016 Franchised Holiday Stores acquisition and the 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016. In the second quarter of 2017, some of these 25 sites were converted to lessee dealer sites, which resulted in the operating expenses being included in the wholesale segment rather than the retail segment.
30
7-Eleven.
We use the non-GAAP financial measures EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio. EBITDA represents net income available to us before deducting interest expense, income taxes and depreciation, amortization and accretion.accretion (which includes certain impairment charges). Adjusted EBITDA represents EBITDA as further adjusted to exclude equity funded expenses related to incentiveequity-based compensation and the Amended Omnibus Agreement,expense, gains or losses on sales of assets,dispositions and lease terminations, net and certain discrete acquisition related costs, such as legal and other professional fees, and severance expenses associated with recently acquired companies,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 the weighted average diluted common and subordinated units and then dividing that result by the distributions paid per limited partner unit.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.
29
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 June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income (a) |
| $ | 13,966 |
|
| $ | 4,789 |
|
| $ | 19,013 |
|
| $ | 822 |
|
Interest expense |
|
| 7,321 |
|
|
| 3,870 |
|
|
| 13,982 |
|
|
| 7,367 |
|
Income tax benefit |
|
| (113 | ) |
|
| (293 | ) |
|
| (1,972 | ) |
|
| (599 | ) |
Depreciation, amortization and accretion expense |
|
| 19,919 |
|
|
| 19,583 |
|
|
| 40,194 |
|
|
| 37,614 |
|
EBITDA |
|
| 41,093 |
|
|
| 27,949 |
|
|
| 71,217 |
|
|
| 45,204 |
|
Equity-based employee and director compensation expense |
|
| 222 |
|
|
| 386 |
|
|
| 954 |
|
|
| 754 |
|
(Gain) loss on dispositions and lease terminations, net |
|
| 58 |
|
|
| (597 | ) |
|
| 302 |
|
|
| 51 |
|
Acquisition-related costs (b) |
|
| 10 |
|
|
| 1,967 |
|
|
| 878 |
|
|
| 4,361 |
|
Adjusted EBITDA |
|
| 41,383 |
|
|
| 29,705 |
|
|
| 73,351 |
|
|
| 50,370 |
|
Cash interest expense |
|
| (6,631 | ) |
|
| (3,610 | ) |
|
| (12,612 | ) |
|
| (6,846 | ) |
Sustaining capital expenditures (c) |
|
| (1,663 | ) |
|
| (1,040 | ) |
|
| (3,217 | ) |
|
| (2,432 | ) |
Current income tax expense |
|
| (678 | ) |
|
| (50 | ) |
|
| (863 | ) |
|
| (334 | ) |
Distributable Cash Flow |
| $ | 32,411 |
|
| $ | 25,005 |
|
| $ | 56,659 |
|
| $ | 40,758 |
|
Distributions paid |
|
| 19,904 |
|
|
| 19,884 |
|
|
| 39,800 |
|
|
| 39,765 |
|
Distribution Coverage Ratio (d) |
| 1.63x |
|
| 1.26x |
|
| 1.42x |
|
| 1.02x |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net income available to limited partners |
| $ | 3,218 |
|
| $ | 2,112 |
|
| $ | (1,126 | ) |
| $ | 5,926 |
|
Interest expense |
|
| 7,102 |
|
|
| 5,634 |
|
|
| 20,599 |
|
|
| 16,403 |
|
Income tax expense (benefit) |
|
| 966 |
|
|
| 1,308 |
|
|
| (1,686 | ) |
|
| 851 |
|
Depreciation, amortization and accretion |
|
| 14,049 |
|
|
| 13,432 |
|
|
| 42,675 |
|
|
| 40,594 |
|
EBITDA |
|
| 25,335 |
|
|
| 22,486 |
|
|
| 60,462 |
|
|
| 63,774 |
|
Equity funded expenses related to incentive compensation and the Amended Omnibus Agreement (a) |
|
| 3,479 |
|
|
| 3,572 |
|
|
| 11,789 |
|
|
| 10,197 |
|
Gain on sales of assets, net |
|
| (2,371 | ) |
|
| (631) |
|
|
| (2,013 | ) |
|
| (525) |
|
Acquisition-related costs (b) |
|
| 2,570 |
|
|
| 1,659 |
|
|
| 10,279 |
|
|
| 2,882 |
|
Inventory fair value adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 91 |
|
Adjusted EBITDA |
|
| 29,013 |
|
|
| 27,086 |
|
|
| 80,517 |
|
|
| 76,419 |
|
Cash interest expense |
|
| (6,674 | ) |
|
| (5,306) |
|
|
| (19,319 | ) |
|
| (15,355 | ) |
Sustaining capital expenditures (c) |
|
| (565 | ) |
|
| (209) |
|
|
| (1,287 | ) |
|
| (538 | ) |
Current income tax expense |
|
| (267 | ) |
|
| (317) |
|
|
| (387 | ) |
|
| (782 | ) |
Distributable Cash Flow |
| $ | 21,507 |
|
| $ | 21,254 |
|
| $ | 59,524 |
|
| $ | 59,744 |
|
Weighted average diluted common and subordinated units |
|
| 33,938 |
|
|
| 33,391 |
|
|
| 33,792 |
|
|
| 33,305 |
|
Distributions paid per limited partner unit (d) |
| $ | 0.6225 |
|
| $ | 0.6025 |
|
| $ | 1.8525 |
|
| $ | 1.7925 |
|
Distribution Coverage Ratio (e) |
| 1.02x |
|
| 1.06x |
|
| 0.95x |
|
| 1.00x |
|
|
|
31
|
|
|
|
|
|
The following table reconciles our segmentBeginning in the second quarter of 2022, we reconcile Adjusted EBITDA to ConsolidatedNet 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 presentedis 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 EBIDTA to Net income available to limited partners in past periods, as we have not recorded accretion of preferred membership interests in past periods.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Adjusted EBITDA - Wholesale segment |
| $ | 27,533 |
|
| $ | 27,030 |
|
| $ | 80,863 |
|
| $ | 76,971 |
|
Adjusted EBITDA - Retail segment |
|
| 2,409 |
|
|
| 2,035 |
|
|
| 4,092 |
|
|
| 6,524 |
|
Adjusted EBITDA - Total segment |
| $ | 29,942 |
|
| $ | 29,065 |
|
| $ | 84,955 |
|
| $ | 83,495 |
|
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of intersegment profit in ending inventory balance |
|
| 14 |
|
|
| 13 |
|
| 20 |
|
|
| 145 |
| |
General and administrative expenses |
|
| (5,994 | ) |
|
| (6,142 | ) |
|
| (23,731 | ) |
|
| (18,068 | ) |
Other income, net |
|
| 121 |
|
|
| (59 | ) |
|
| 366 |
|
|
| 375 |
|
Equity funded expenses related to incentive compensation and the Amended Omnibus Agreement |
|
| 3,479 |
|
|
| 3,572 |
|
|
| 11,789 |
|
|
| 10,197 |
|
Working capital adjustment |
|
| — |
|
|
| 335 |
|
|
| — |
|
|
| 335 |
|
Acquisition-related costs |
|
| 2,570 |
|
|
| 1,182 |
|
|
| 10,279 |
|
|
| 2,405 |
|
Net (income) loss attributable to noncontrolling interests |
|
| (4 | ) |
|
| (3 | ) |
|
| 1 |
|
|
| (9 | ) |
IDR distributions |
|
| (1,115 | ) |
|
| (877 | ) |
|
| (3,162 | ) |
|
| (2,456 | ) |
Consolidated Adjusted EBITDA |
| $ | 29,013 |
|
| $ | 27,086 |
|
| $ | 80,517 |
|
| $ | 76,419 |
|
32
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 and IDR distributions.unitholders. We expect our ongoing sources of liquidity to include cash generated by operations, proceeds from sales of sites in connection with our operations andreal estate rationalization efforts, borrowings under the revolving credit facilityCAPL 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 including sale-leaseback financing of real property with third parties, to support our liquidity requirements.
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.
30
We believe that we will have sufficient cash flow from operations, borrowing capacity under the revolving credit facilityCAPL 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.securities and/or maintain or increase distributions to unitholders.
See “Recent Developments—COVID-19 Pandemic” for a discussion of the impacts and potential impacts on our liquidity from the COVID-19 Pandemic.
Cash Flows
The following table summarizes cash flow activity (in thousands):
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net cash provided by operating activities |
| $ | 54,659 |
|
| $ | 41,014 |
|
Net cash used in investing activities |
|
| (14,429 | ) |
|
| (20,392 | ) |
Net cash used in financing activities |
|
| (44,306 | ) |
|
| (20,514 | ) |
|
| Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Net cash provided by operating activities |
| $ | 66,438 |
|
| $ | 63,698 |
|
Net cash provided by (used in) investing activities |
| $ | 11,291 |
|
| $ | (90,288 | ) |
Net cash (used in) provided by financing activities |
| $ | (77,513 | ) |
| $ | 28,295 |
|
Operating Activities
Net cash provided by operating activities increased $2.7$13.6 million for the ninesix months ended SeptemberJune 30, 20172022 compared to the same period in 2016, driven2021, primarily byattributable to the incremental cash flow generated by the sites acquired from 7-Eleven and the strong DTW margins in the first half of 2022.
As is typical in our acquisitions. In addition, we settled $2.3 million more in management fees related to the services provided under the Amended Omnibus Agreement in equity with CST for the nine months ended September 30, 2017 compared to the same period in 2016.
Investing Activities
For the nine months ended September 30, 2017, we received $23.9 million of proceeds on sales, largely driven by the sale of 28 properties to DMR and two properties soldindustry, our current liabilities exceed our current assets as a result of the FTC’s requirements associated with Couche-Tard’s acquisitionlonger settlement of CST. 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 also incurred $10.2 million in capital expenditures of $16.4 million and paid a $2.8$21.9 million deposit onfor the Jet-Pep acquisition. For the ninesix months ended SeptemberJune 30, 2016, we received a $17.52022 and 2021, respectively. The decrease was largely driven by reductions in EMV upgrades and rebranding of certain sites, including the sites acquired from 7-Eleven. We paid $1.9 million refund payment on our investment in CST Fuel Supplyand $4.2 million during the six months ended June 30, 2022 and 2021, respectively, in connection with CST’sthe closing of sites acquired from 7-Eleven. We received $3.8 million and $5.6 million in proceeds primarily from the sale of sites in California and Wyoming. In addition, we spent $97.1 million onconnection with our real estate rationalization effort for the acquisitions of the Franchised Holidays Stores, State Oil Assets, and independent dealer and sub-wholesaler contracts from CST. We also incurred $11.6 million in capital expenditures.
Financing Activities
For the ninesix months ended SeptemberJune 30, 2017, we2022 and 2021, respectively.
Financing Activities
We paid $65.7$39.9 million and $39.8 million in distributions for the six months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, respectively, we made total net repayments and net borrowings on our credit facilityfacilities of $10.0$27.5 million and $20.6 million. ForWe received $24.4 million in net proceeds from the nineissuance of preferred membership interests during the six months ended SeptemberJune 30, 2016, we paid $62.2 million in distributions, made net borrowings of $96.1 million primarily to fund our Franchised Holiday Stores and State Oil Assets acquisitions, and purchased $3.3 million in common units under our common unit purchase program.2022.
33
Distributions
Distribution activity for 20172022 was as follows:
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 |
|
Quarter Ended |
| Record Date |
| Payment Date |
| Cash Distribution (per unit) |
|
| Cash Distribution (in thousands) |
| ||
December 31, 2016 |
| February 6, 2017 |
| February 13, 2017 |
| $ | 0.6125 |
|
| $ | 20,534 |
|
March 31, 2017 |
| May 8, 2017 |
| May 15, 2017 |
| $ | 0.6175 |
|
| $ | 20,826 |
|
June 30, 2017 |
| August 7, 2017 |
| August 14, 2017 |
| $ | 0.6225 |
|
| $ | 21,079 |
|
September 30, 2017 |
| November 6, 2017 |
| November 13, 2017 |
| $ | 0.6275 |
|
| $ | 21,326 |
|
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.
IDRs31
During the three and nine months ended September 30, 2017, we distributed $1.1 million and $3.2 million to CST / Couche-Tarde with respect to the IDRs, respectively.Debt
Expiration of the Subordination Period
In accordance with the terms of the Partnership Agreement, on February 25, 2016, the first business day after the payment of the fourth quarter 2015 distribution of $0.5925 per unit, the subordination period under the Partnership Agreement ended. At that time, each of the 7,525,000 outstanding subordinated units converted into one common unit and now participates in distributions pro rata with other common units.
Debt
As of SeptemberJune 30, 2017,2022, our consolidated debt and capitalfinance lease obligations consisted of the following (in thousands):
$550 million revolving credit facility |
| $ | 431,484 |
|
Note payable |
|
| 779 |
|
Capital lease obligations |
|
| 27,728 |
|
Total debt and capital lease obligations |
|
| 459,991 |
|
Current portion |
|
| 2,884 |
|
Noncurrent portion |
|
| 457,107 |
|
Deferred financing fees |
|
| (2,334 | ) |
Noncurrent portion, net of deferred financing fees |
| $ | 454,773 |
|
CAPL Credit Facility |
| $ | 626,555 |
|
JKM Credit Facility |
|
| 158,980 |
|
Finance lease obligations |
|
| 15,471 |
|
Total debt and finance lease obligations |
|
| 801,006 |
|
Current portion |
|
| 5,575 |
|
Noncurrent portion |
|
| 795,431 |
|
Deferred financing costs, net |
|
| 7,232 |
|
Noncurrent portion, net of deferred financing costs |
| $ | 788,199 |
|
Our revolving credit facility is secured by substantially all of our assets. Our borrowings underTaking the revolving credit facility had a weighted-average interest rate of 4.24%swap contracts into account, our effective interest rate on our CAPL Credit Facility at June 30, 2022 was 3.2% (our applicable margin was 2.25% as of SeptemberJune 30, 2017 (LIBOR plus an applicable margin, which was 3.00% as of September 30, 2017)2022). Letters of credit outstanding under our CAPL Credit Facility at SeptemberJune 30, 20172022 totaled $6.5$4.0 million.
Our effective interest rate on our JKM Credit Facility at June 30, 2022 was 3.6% (our applicable margin was 2.5% as of June 30, 2022). Letters of credit outstanding under our JKM Credit Facility at June 30, 2022 totaled $0.8 million.
The amount of availability under the revolving credit facilityour CAPL Credit Facility at November 3, 2017,August 4, 2022, after taking into consideration debt covenant restrictions, was $55.2$135.5 million. In connection with future acquisitions, the revolving credit facility requires, among other things, that we have, after giving effect to such acquisition, at least $20 million in the aggregate
The amount of borrowing availability under the revolving credit facility and unrestricted cash on the balance sheet on the date of such acquisition. We are required to maintain a total leverage ratio (as defined in the revolving credit facility) for the most recently completed four fiscal quarters of less than or equal to 4.50: 1.00, except for the first three full fiscal quarters following a material acquisition, generally defined as an acquisition with a purchase price ofJKM Credit Facility at least $30.0 million, with a ratio of 5.00: 1.00, and a consolidated interest coverage ratio (as defined in the revolving credit facility) of greater than or equal to 2.75: 1.00. The computation of our total leverage ratio allows for a pro forma application of the EBITDA (as defined in the revolving credit facility) of acquired entities andAugust 4, 2022, after taking into consideration debt covenant restrictions, was 4.03: 1.00 as of September 30, 2017. As of September 30, 2017, we were in compliance with these financial covenant ratios.$10.0 million.
34
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 revolving credit facilityCAPL Credit Facility, 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. With the significant decline in energy prices since 2014, access to the capital markets has tightened for the energy and MLP industries as a whole, which has impacted our cost of capital and our ability to raise equity and debt financing at favorable terms. 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.
The following table outlines our consolidated capital expenditures and acquisitions for the nine months ended September 30, 2017 and 2016 (in thousands):
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Sustaining capital |
| $ | 3,217 |
|
| $ | 2,432 |
|
Growth |
|
| 13,186 |
|
|
| 19,479 |
|
Acquisitions |
|
| 1,885 |
|
|
| 4,166 |
|
Total capital expenditures and acquisitions |
| $ | 18,288 |
|
| $ | 26,077 |
|
Growth capital expenditures decreased during 2022 as compared with 2021, primarily due to decreases in EMV upgrades and rebranding of certain sites, including the sites acquired from 7-Eleven.
|
| Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Sustaining capital |
| $ | 1,287 |
|
| $ | 538 |
|
Growth |
|
| 8,888 |
|
|
| 11,029 |
|
Acquisitions |
|
| 2,779 |
|
|
| 97,073 |
|
Total capital expenditures and acquisitions |
| $ | 12,954 |
|
| $ | 108,640 |
|
Other Matters Impacting Liquidity and Capital Resources
Concentration of Customers
For the ninesix months ended SeptemberJune 30, 2017, we distributed2022 and 2021, respectively, approximately 14%21% and 19% of our total wholesale distribution volumes to DMS and its affiliates and DMS and its affiliates accounted for approximately 23% of our rental income. For the nine months ended September 30, 2017, we distributed 8% of our total wholesale distribution volume to CST retail sites that are not supplied by CST Fuel Supply and received 22% of our rentalrent income was from CST. For more information regarding transactions with DMS and its affiliates and CST, see Note 8 of the Condensed Notes to Consolidated Financial Statements.two multi-site operators.
For the nine months ended September 30, 2017, we received 9% of our rental income from a lessee dealer that operates certain of the retail sites acquired through the PMI and One Stop acquisitions.32
Outlook
As noted previously, the prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our costscost 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.
We expect our rent incomeOur results for 2022 relative to 2021 are anticipated to be impacted by the acquisition of assets from 7-Eleven, which is anticipated to increase gross profit both within the wholesale and retail segments and operating expenses within the retail segment. Given increases in 2017 based on our recent acquisitions and our expectation thatLIBOR, we will continuealso anticipate higher interest expense in 2022 as compared to convert company operated retail sites to lessee dealers.2021.
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, acquisition related compliance with customary regulatory requirements, and our ability to finance such acquisitions on favorable terms and in compliance with our debt covenant restrictions.
35
In May 2014, the FASB issued ASU 2014-09–Revenue from Contracts with Customers (Topic 606), which results in comprehensiveThere is no new revenue accounting guidance requires enhanced disclosureseffective or pending adoption that has had or is anticipated to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized, and develops a common revenue standard under U.S. GAAP and International Financial Reporting Standards. Specifically, the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. With the issuance of ASU 2015-14, which deferred the effective date by one year, this guidance is effective January 1, 2018. The guidance can be applied either retrospectively to each prior reporting period presented, or as a cumulative-effect adjustment as of the date of adoption. Although management continues to evaluate the impact of adopting this new guidance, we have completed an assessment and to date, have not identified any material impact on the financial statements, although it will affect disclosures. This guidance is expected to apply to over 90% of our revenues as the only primary revenue stream outside the scope of this guidance is rental income. We anticipate using the modified retrospective method of adoption.
In February 2016, the FASB issued ASU 2016-02–Leases (Topic 842). This standard modifies existing guidance for reporting organizations that enter into leases to increase transparency by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and requires a modified retrospective approach to adoption. Early adoption is permitted. Management continues to evaluate the impact of this new guidance, but the adoption will have a material impact on our balance sheet as we will be required to recognize right-of-use assets and lease liabilities for operating leases. We do not anticipate adopting this guidance early. We intend to apply each of the practical expedients in adopting this new guidance.financial statements.
In October 2016, the FASB issued ASU 2016-16–Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard requires companies to account for income tax effects of intercompany transactions other than inventory in the period in which the transfer occurs. This guidance is effective January 1, 2018 and requires a modified retrospective application through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We have chosen to early adopt the standard effective January 1, 2017, which had no impact as of the date of adoption but could impact us in the future.
In January 2017, the FASB issued ASU 2017-01–Business Combinations (Topic 805): Clarifying the Definition of a Business. This standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 is effective for public fiscal years and interim periods within those years beginning after December 15, 2017. We have chosen to early adopt this standard effective January 1, 2017. Although there was no impact upon adoption, among other things, this guidance will result in the capitalization rather than expensing of acquisition costs in future transactions that will be accounted for as asset acquisitions rather than business combinations under the new definition of a business.
In January 2017, the FASB issued ASU 2017-04–Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for a company's annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Management has elected to early adopt this guidance effective January 1, 2017, which had no impact upon adoption but could result in a change in the measurement of an impairment loss if an impairment was required to be recorded in the future.
Certain other new financial accounting pronouncements have become effective for our financial statements but the adoption of these pronouncements did not materially impact our financial position, results of operations or disclosures.
Critical Accounting Policies Involving Critical Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ from those estimates.
There have been no material changes to the critical accounting policies described in our Form 10-K.
36
ITEM 3. QUANTITATIVE AND QUALITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
We purchase gasoline and diesel fuel from several suppliers at costs that are subject to market volatility. These purchases are generally made pursuant to contracts or at market prices established with the supplier. We do not currently engage in hedging activities for these purchases due to our pricing structure that allows us to generally pass on priceNo significant changes to our customersmarket risk have occurred since December 31, 2021. For a discussion of market risks affecting us, refer to Part II, Item 7A—"Quantitative and related parties.
Interest Rate Risk
As of September 30, 2017, we had $431.5 million outstanding on our revolving credit facility. Our outstanding borrowings bear interest at LIBOR plus an applicable margin, which was 3.00% at September 30, 2017. Our borrowings had a weighted-average interest rate at September 30, 2017 of 4.24%. A one percentage point changeQualitative Disclosures About Market Risk” included in our average rate would impact annual interest expense by approximately $4.3 million.Form 10-K.
Commodity Price Risk
We have not historically hedged or managed our price risk with respect to our commodity inventories (gasoline and diesel fuel), as the time period between the purchases of our motor fuel inventory and the sales to our customers is very short.
Regarding our supplier relationships, a majority of our total gallons purchased are subject to Terms Discounts. We have not historically hedged or managed our price risk with respect to these Terms Discounts. Based on our current volumes, we estimate a $10 per barrel change in the price of crude oil would impact our annual wholesale motor fuel gross profit by approximately $2.2 million related to these Terms Discounts.
Foreign Currency Risk
Our operations are located in the U.S., and therefore are not subject to foreign currency risk.
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 RulesRule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, and basedreport. Based on theirthis evaluation, our principal executive officerChief Executive Officer and principal financial officer haveChief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2017.2022.
(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 RulesRule 13a-15(f) under the Exchange Act) that occurred during the three months ended SeptemberJune 30, 2017,2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
PART II - OTHEROTHER INFORMATION
We hereby incorporate by reference into this Item our disclosures made in Part I, Item 1 of this quarterly report included in Note 911 of the Condensed Notes to Consolidated Financial Statements.financial statements.
There were no material changes in risk factors for the company in the period covered by this report. See the risk factors disclosed in the section entitled “Risk Factors”"Risk Factors" in our Form 10-K forduring the year ended December 31, 2016.period covered by this report.
ITEM 2. UNRESGISTERED SALES OF EQUITY SECURITIES33
Management Fee Issuance
As discussed in Note 8 to Item 1 in Part I above, on February 28, 2017, May 10, 2017 and August 9, 2017, CrossAmerica issued 171,039, 128,983, and 124,003 common units to a subsidiary of CST/Couche-Tard as partial payment for the amounts incurred for the fourth quarter of 2016, the first quarter of 2017 and the second quarter of 2017 respectively, under the terms of the Amended Omnibus Agreement. This issuance of common units was made in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS.EXHIBITS
Exhibit No. |
| Description |
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|
|
| ||
| ||
|
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|
31.2 * |
| |
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|
|
32.1*† |
| Certification of Principal Executive Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350 |
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|
|
32.2*† |
| Certification of Principal Financial Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350 |
|
|
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|
| 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. |
|
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| Inline XBRL Taxonomy Extension Schema Document |
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| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| Inline XBRL Taxonomy Extension Label Linkbase Document |
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| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| Inline XBRL Taxonomy Extension Definition Linkbase Document |
104* | Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101 |
|
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38* 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.
34
Pursuant to the requirements of Section 13 or 15(d) 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 |
|
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|
By: |
| /s/ |
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| (Duly Authorized Officer and Principal Financial |
Date: November 7, 2017August 8, 2022
3935