UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2021March 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to to
Commission File No. 001-35711
CROSSAMERICA PARTNERS LP
(Exact name of registrant as specified in its charter)
Delaware | 45-4165414 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Allentown, PA | 18101 (Zip Code)
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(Address of Principal Executive Offices) |
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Units | CAPL | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☑ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer☒ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of AugustMay 5, 2021,2022, the registrant had outstanding 37,891,70137,912,710 common units.
TABLE OF CONTENTS
COMMONLY USED DEFINED TERMS
The following is a list of certain acronyms and terms generally used in the industry and throughout this document: | ||||||
CrossAmerica Partners LP and subsidiaries: | ||||||
CrossAmerica | CrossAmerica Partners LP, |
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Holdings | CAPL JKM | Holdings LLC, an indirect wholly-owned subsidiary of CrossAmerica and sole member of CAPL JKM | ||||
CAPL JKM Partners | CAPL JKM Partners LLC, a wholly-owned subsidiary of Holdings | |||||
Joe’s Kwik Marts | Joe’s Kwik Marts LLC, a wholly-owned subsidiary of CAPL JKM Partners | |||||
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CrossAmerica Partners LP related | ||||||
DMI | Dunne Manning Inc. (formerly Lehigh Gas Corporation), an entity affiliated with the Topper Group | |||||
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| CrossAmerica GP LLC, the General Partner of CrossAmerica, a Delaware limited liability company, indirectly owned by the Topper Group. | |||||
Topper Group | Joseph V. Topper, Jr., collectively with his affiliates and family trusts that have ownership interests in the Partnership. Joseph V. Topper, Jr. is the founder of the Partnership and a member of the Board. The Topper Group is a related party and large holder of our common units | |||||
TopStar | TopStar Inc., an entity affiliated with a family member of Joseph V. Topper, Jr. TopStar is an operator of convenience stores that leases retail sites from us, and since April 14, 2020, also purchases fuel from us. | |||||
Other Defined Terms: | ||||||
| 7-Eleven, Inc. | |||||
AOCI | Accumulated other comprehensive income | |||||
Board | Board of Directors of our General Partner | |||||
Bonus Plan | The | |||||
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| In December 2019, a novel strain of coronavirus was reported to have | |||
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| Dealer tank wagon contracts, which are variable market-based cent per gallon priced wholesale motor fuel distribution or supply | |||
EBITDA | Earnings before interest, taxes, depreciation, amortization and accretion, a non-GAAP financial measure | |||
EMV | Payment method based upon a technical standard for smart payment cards, also referred to as chip cards | |||
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| 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 of 1986, as amended | |||
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IPO | Initial public offering of CrossAmerica Partners LP on October 30, 2012 | |||
| 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 | |||
MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
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| The | |||
| Second Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated as of February 6, 2020 | |||
Predecessor Entity | Wholesale distribution contracts and real property and leasehold interests contributed to the Partnership in connection with the IPO | |||
Term Loan Facility | $185 million delayed draw term loan facility provided under the JKM Credit Facility | |||
U.S. GAAP | U.S. Generally Accepted Accounting Principles | |||
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| West Texas Intermediate crude oil |
ii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROSSAMERICA PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except unit data)
(Unaudited)
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| June 30, |
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| December 31, |
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| March 31, |
| December 31, |
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| 2021 |
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| 2020 |
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| 2022 |
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| 2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 621 |
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| $ | 513 |
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| $ | 11,149 |
| $ | 7,648 |
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Accounts receivable, net of allowances of $282 and $429, respectively |
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| 35,037 |
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| 28,519 |
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Accounts receivable, net of allowances of $499 and $458, respectively |
| 34,392 |
| 33,331 |
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Accounts receivable from related parties |
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| 1,147 |
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|
| 931 |
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| 951 |
| 1,149 |
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Inventory |
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| 24,414 |
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| 23,253 |
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| 52,681 |
| 46,100 |
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Assets held for sale |
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| 5,553 |
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| 9,898 |
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| 4,175 |
| 4,907 |
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Other current assets |
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| 14,856 |
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| 11,707 |
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| 19,631 |
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| 13,180 |
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Total current assets |
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| 81,628 |
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| 74,821 |
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| 122,979 |
| 106,315 |
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Property and equipment, net |
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| 562,849 |
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| 570,856 |
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| 757,232 |
| 755,454 |
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Right-of-use assets, net |
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| 164,240 |
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| 167,860 |
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| 165,605 |
| 169,333 |
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Intangible assets, net |
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| 85,570 |
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| 92,912 |
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| 105,506 |
| 114,187 |
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Goodwill |
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| 88,764 |
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| 88,764 |
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| 99,409 |
| 100,464 |
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Other assets |
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| 21,500 |
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| 19,129 |
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| 30,055 |
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| 24,389 |
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Total assets |
| $ | 1,004,551 |
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| $ | 1,014,342 |
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| $ | 1,280,786 |
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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 |
| $ | 2,679 |
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| $ | 2,631 |
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| $ | 2,774 |
| $ | 10,939 |
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Current portion of operating lease obligations |
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| 32,557 |
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| 31,958 |
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| 34,793 |
| 34,832 |
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Accounts payable |
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| 71,230 |
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| 63,978 |
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| 80,010 |
| 67,173 |
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Accounts payable to related parties |
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| 6,400 |
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| 5,379 |
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| 7,915 |
| 7,679 |
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Accrued expenses and other current liabilities |
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| 21,649 |
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| 23,267 |
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| 20,967 |
| 20,682 |
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Motor fuel and sales taxes payable |
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| 22,320 |
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| 19,735 |
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| 22,197 |
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| 22,585 |
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Total current liabilities |
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| 156,835 |
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| 146,948 |
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| 168,656 |
| 163,890 |
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Debt and finance lease obligations, less current portion |
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| 546,759 |
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| 527,299 |
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| 799,034 |
| 810,635 |
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Operating lease obligations, less current portion |
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| 137,559 |
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| 141,380 |
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| 136,481 |
| 140,149 |
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Deferred tax liabilities, net |
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| 15,183 |
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| 15,022 |
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| 10,296 |
| 12,341 |
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Asset retirement obligations |
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| 41,877 |
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| 41,450 |
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| 45,877 |
| 45,366 |
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Other long-term liabilities |
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| 34,199 |
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| 32,575 |
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| 45,633 |
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| 41,203 |
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Total liabilities |
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| 932,412 |
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| 904,674 |
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| 1,205,977 |
| 1,213,584 |
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Commitments and contingencies |
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Preferred membership interests |
| 24,500 |
| — |
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Equity: |
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Common units—37,874,868 and 37,868,046 units issued and outstanding at June 30, 2021 and December 31, 2020, respectively |
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| 72,162 |
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| 112,124 |
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Accumulated other comprehensive loss |
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| (23 | ) |
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| (2,456 | ) | ||||||||
Common units—37,912,710 and 37,896,556 units issued and |
| 38,960 |
| 53,528 |
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Accumulated other comprehensive income |
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| 11,349 |
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| 3,030 |
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Total equity |
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| 72,139 |
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| 109,668 |
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| 50,309 |
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| 56,558 |
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Total liabilities and equity |
| $ | 1,004,551 |
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| $ | 1,014,342 |
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| $ | 1,280,786 |
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| $ | 1,270,142 |
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See Condensed Notes to Consolidated Financial Statements.
iii1
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, except unit and per unit amounts)
(Unaudited)
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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| Three Months Ended March 31, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| 2022 |
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| 2021 |
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Operating revenues (a) |
| $ | 859,334 |
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| $ | 398,402 |
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| $ | 1,516,618 |
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| $ | 790,097 |
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| $ | 1,093,211 |
| $ | 657,284 |
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Costs of sales (b) |
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| 794,240 |
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| 340,754 |
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| 1,396,656 |
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| 696,720 |
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| 1,014,381 |
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| 602,416 |
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Gross profit |
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| 65,094 |
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| 57,648 |
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| 119,962 |
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| 93,377 |
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| 78,830 |
| 54,868 |
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Income from CST Fuel Supply equity interests |
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| 3,202 |
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Operating expenses: |
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Operating expenses (c) |
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| 31,070 |
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| 25,097 |
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| 60,473 |
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| 35,820 |
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| 42,109 |
| 29,403 |
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General and administrative expenses |
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| 6,876 |
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| 5,597 |
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| 14,526 |
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| 10,077 |
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| 6,483 |
| 7,650 |
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Depreciation, amortization and accretion expense |
|
| 19,583 |
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| 16,050 |
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| 37,614 |
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| 33,277 |
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| 20,275 |
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| 18,031 |
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Total operating expenses |
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| 57,529 |
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| 46,744 |
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| 112,613 |
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| 79,174 |
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| 68,867 |
| 55,084 |
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Gain (loss) on dispositions and lease terminations, net |
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| 597 |
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| (4,575 | ) |
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| (51 | ) |
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| 66,356 |
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Operating income |
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| 8,162 |
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| 6,329 |
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| 7,298 |
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| 83,761 |
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Loss on dispositions and lease terminations, net |
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| (244 | ) |
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| (648 | ) | ||||||||||||||||
Operating income (loss) |
| 9,719 |
| (864 | ) | |||||||||||||||||||
Other income, net |
|
| 204 |
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| 78 |
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| 292 |
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| 215 |
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| 130 |
| 88 |
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Interest expense |
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| (3,870 | ) |
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| (4,121 | ) |
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| (7,367 | ) |
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| (9,661 | ) |
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| (6,661 | ) |
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| (3,497 | ) |
Income before income taxes |
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| 4,496 |
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| 2,286 |
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| 223 |
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| 74,315 |
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Income (loss) before income taxes |
| 3,188 |
| (4,273 | ) | |||||||||||||||||||
Income tax benefit |
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| (293 | ) |
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| (2,944 | ) |
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| (599 | ) |
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| (2,976 | ) |
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| (1,859 | ) |
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| (306 | ) |
Net income |
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| 4,789 |
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| 5,230 |
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| 822 |
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| 77,291 |
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IDR distributions |
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| — |
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| — |
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| — |
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| (133 | ) | ||||||||
Net income available to limited partners |
| $ | 4,789 |
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| $ | 5,230 |
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| $ | 822 |
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| $ | 77,158 |
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Net income (loss) available to limited partners |
| $ | 5,047 |
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| $ | (3,967 | ) | ||||||||||||||||
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Basic and diluted earnings per common unit |
| $ | 0.13 |
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| $ | 0.14 |
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| $ | 0.02 |
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| $ | 2.09 |
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| $ | 0.13 |
| $ | (0.10 | ) | |
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Weighted-average limited partner units: |
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Basic common units |
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| 37,874,868 |
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| 37,736,329 |
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| 37,872,079 |
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| 36,865,651 |
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| 37,900,146 |
| 37,869,259 |
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Diluted common units |
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| 37,905,010 |
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| 37,738,150 |
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| 37,902,225 |
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| 36,867,495 |
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| 37,959,441 |
| 37,891,130 |
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Supplemental information: |
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(a) includes excise taxes of: |
| $ | 50,047 |
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| $ | 33,770 |
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| $ | 93,753 |
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| $ | 48,707 |
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| $ | 66,858 |
| $ | 43,705 |
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(a) includes rent income of: |
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| 20,862 |
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| 20,424 |
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| 41,334 |
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| 43,112 |
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| 20,627 |
| 20,472 |
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(b) excludes depreciation, amortization and accretion |
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(b) includes rent expense of: |
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| 6,031 |
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| 6,132 |
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| 11,944 |
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| 13,052 |
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| 5,841 |
| 5,913 |
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(c) includes rent expense of: |
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| 3,265 |
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| 2,522 |
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| 6,461 |
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| 2,522 |
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| 3,708 |
| 3,196 |
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See Condensed Notes to Consolidated Financial Statements.
2
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
|
| Six Months Ended June 30, |
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| Three Months Ended March 31, |
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| 2021 |
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| 2020 |
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| 2022 |
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| 2021 |
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Cash flows from operating activities: |
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Net income |
| $ | 822 |
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| $ | 77,291 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Net income (loss) |
| $ | 5,047 |
| $ | (3,967 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by |
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Depreciation, amortization and accretion expense |
|
| 37,614 |
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| 33,277 |
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| 20,275 |
| 18,031 |
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Amortization of deferred financing costs |
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| 521 |
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| 521 |
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| 680 |
| 260 |
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Credit loss expense |
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| 32 |
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| 627 |
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| 45 |
| 31 |
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Deferred income tax benefit |
|
| (921 | ) |
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| (3,063 | ) |
| (2,045 | ) |
| (590 | ) | ||
Equity-based employee and director compensation expense |
|
| 754 |
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| 48 |
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| 732 |
| 368 |
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Loss (gain) on dispositions and lease terminations, net |
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| 51 |
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| (74,189 | ) | ||||||||
Loss on dispositions and lease terminations, net |
| 244 |
| 648 |
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Changes in operating assets and liabilities, net of acquisitions |
|
| 2,141 |
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| 27,131 |
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| 3,410 |
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| 2,887 |
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Net cash provided by operating activities |
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| 41,014 |
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| 61,643 |
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| 28,388 |
| 17,668 |
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Cash flows from investing activities: |
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Principal payments received on notes receivable |
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| 85 |
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| 172 |
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| 33 |
| 47 |
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Proceeds from Circle K in connection with CST Fuel Supply Exchange |
|
| — |
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| 16,396 |
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Proceeds from sale of assets |
|
| 5,600 |
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|
| 9,954 |
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| 1,460 |
| 931 |
| |||
Capital expenditures |
|
| (21,911 | ) |
|
| (10,760 | ) |
| (8,934 | ) |
| (10,621 | ) | ||
Cash paid in connection with acquisitions, net of cash acquired |
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| (4,166 | ) |
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| (22,342 | ) |
|
| (1,885 | ) |
|
| — |
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Net cash used in investing activities |
|
| (20,392 | ) |
|
| (6,580 | ) |
| (9,326 | ) |
| (9,643 | ) | ||
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|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Borrowings under the CAPL Credit Facility |
|
| 57,000 |
|
|
| 63,201 |
| ||||||||
Repayments on the CAPL Credit Facility |
|
| (36,399 | ) |
|
| (78,527 | ) | ||||||||
Payments of long-term debt and finance lease obligations |
|
| (1,287 | ) |
|
| (1,207 | ) | ||||||||
Borrowings under revolving credit facilities |
| 30,600 |
| 34,500 |
| |||||||||||
Repayments on revolving credit facilities |
| (26,575 | ) |
| (21,539 | ) | ||||||||||
Borrowings under the Term Loan Facility |
| 1,120 |
| — |
| |||||||||||
Repayments on the Term Loan Facility |
| (24,600 | ) |
| — |
| ||||||||||
Net proceeds from issuance of preferred membership interests |
| 24,500 |
| — |
| |||||||||||
Payments of finance lease obligations |
| (658 | ) |
| (633 | ) | ||||||||||
Payments of deferred financing costs |
| (6 | ) |
| — |
| ||||||||||
Distributions paid on distribution equivalent rights |
|
| (63 | ) |
|
| (2 | ) |
| (46 | ) |
| (31 | ) | ||
Distributions paid to holders of the IDRs |
|
| — |
|
|
| (133 | ) | ||||||||
Distributions paid on common units |
|
| (39,765 | ) |
|
| (37,990 | ) |
|
| (19,896 | ) |
|
| (19,881 | ) |
Net cash used in financing activities |
|
| (20,514 | ) |
|
| (54,658 | ) |
|
| (15,561 | ) |
|
| (7,584 | ) |
Net increase in cash and cash equivalents |
|
| 108 |
|
|
| 405 |
|
| 3,501 |
| 441 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents at beginning of period |
|
| 513 |
|
|
| 1,780 |
|
|
| 7,648 |
|
|
| 513 |
|
Cash and cash equivalents at end of period |
| $ | 621 |
|
| $ | 2,185 |
|
| $ | 11,149 |
|
| $ | 954 |
|
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 |
|
| Incentive |
|
|
|
|
|
|
|
|
| ||||||
|
| Common Unitholders |
|
| Distribution Rights |
|
| Accumulated other comprehensive loss |
|
| Total Equity |
| ||||||||
|
| Units |
|
| Dollars |
|
| Dollars |
|
| Dollars |
|
| Dollars |
| |||||
Balance at December 31, 2020 |
|
| 37,868,046 |
|
| $ | 112,124 |
|
| $ | — |
|
| $ | (2,456 | ) |
| $ | 109,668 |
|
Net loss |
|
| — |
|
|
| (3,967 | ) |
|
| — |
|
|
| — |
|
|
| (3,967 | ) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,017 |
|
|
| 2,017 |
|
Realized loss on interest rate swap contracts reclassified from AOCI into interest expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 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 reclassified from AOCI into interest expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
|
| 34,494,441 |
|
| $ | 78,397 |
|
| $ | — |
|
| $ | — |
|
| $ | 78,397 |
|
Net income |
|
| — |
|
|
| 71,928 |
|
|
| 133 |
|
|
| — |
|
|
| 72,061 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (786 | ) |
|
| (786 | ) |
Realized gain on interest rate swap contract reclassified from AOCI into interest expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11 | ) |
|
| (11 | ) |
Total other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (797 | ) |
|
| (797 | ) |
Comprehensive income (loss) |
|
| — |
|
|
| 71,928 |
|
|
| 133 |
|
|
| (797 | ) |
|
| 71,264 |
|
Issuance of units to the Topper Group in connection with the Equity Restructuring Agreement |
|
| 2,528,673 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Distributions paid |
|
| — |
|
|
| (18,111 | ) |
|
| (133 | ) |
|
| — |
|
|
| (18,244 | ) |
Balance at March 31, 2020 |
|
| 37,023,114 |
|
| $ | 132,214 |
|
| $ | — |
|
| $ | (797 | ) |
| $ | 131,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| — |
|
|
| 5,230 |
|
|
| — |
|
|
| — |
|
|
| 5,230 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on interest rate swap contracts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,406 | ) |
|
| (2,406 | ) |
Realized gain on interest rate swap contracts reclassified from AOCI into interest expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15 | ) |
|
| (15 | ) |
Total other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,421 | ) |
|
| (2,421 | ) |
Comprehensive income (loss) |
|
| — |
|
|
| 5,230 |
|
|
| — |
|
|
| (2,421 | ) |
|
| 2,809 |
|
Acquisition of assets from entities under common control, net of fair value of common units issued |
|
| 842,891 |
|
|
| 4,169 |
|
|
| — |
|
|
| — |
|
|
| 4,169 |
|
Distributions paid |
|
|
|
|
|
| (19,881 | ) |
|
| — |
|
|
| — |
|
|
| (19,881 | ) |
Balance at June 30, 2020 |
|
| 37,866,005 |
|
| $ | 121,732 |
|
| $ | — |
|
| $ | (3,218 | ) |
| $ | 118,514 |
|
|
| Limited Partners' Interest |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2020 |
|
| 37,868,046 |
|
| $ | 112,124 |
|
| $ | (2,456 | ) |
| $ | 109,668 |
|
Net loss |
|
| — |
|
|
| (3,967 | ) |
|
| — |
|
|
| (3,967 | ) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Our business consists of:
|
|
| • 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 |
|
|
|
|
The financial statements reflect the consolidated results of the Partnershipretail sites;
|
|
|
|
|
|
|
|
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 June 30, 2021March 31, 2022 and for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 included in the consolidated financial statements has been derived from our unaudited financial statements. Financial information as of December 31, 20202021 has been derived from our audited financial statements and notes thereto as of that date.
Operating results for the three and six months ended June 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. 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.
4
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Certain new accounting pronouncements have become effective for our financial statements during 2021,2022, but the adoption of these pronouncements did not materially impact our financial position, results of operations or disclosures.
Concentration Risk
Approximately 12% of our rent income forFor the sixthree months ended June 30,March 31, 2022 and 2021, and 2020 was from one multi-site operator.
For the six months ended June 30, 2021,respectively, our wholesale business purchased approximately 34%, 23%, 12%81% and 10%78% of its motor fuel from ExxonMobil, BP, Motiva4 suppliers. Approximately 24% and Marathon, respectively. For the six months ended June 30, 2020, our wholesale business purchased approximately 26%, 22%, 13% and 10% of its motor fuel from ExxonMobil, BP, Motiva and Circle K, respectively. No other fuel suppliers accounted for 10% or more of our motor fuel purchases during the six months ended June 30, 2021 and 2020.
Approximately 17% and 15%29% of our motor fuel gallons sold for the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, respectively, were delivered by one carrier.2 carriers.
Prior Year AcquisitionsFor the three months ended March 31, 2022 and 2021, respectively, approximately 22% and 18% of our rent income was from 2 multi-site operators.
We completed six tranches5
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2022 and 2021, respectively, approximately 41% and 42% of the asset exchange with Circle K on May 21, 2019, September 5, 2019, February 25, 2020, April 7, 2020, May 5, 2020 and September 15, 2020. With the closing of the sixth tranche, the transactions contemplated under the Asset Exchange Agreement we entered into with Circle K on December 17, 2018 (“Asset Exchange Agreement”) have concluded. Through these transactions, we acquired 191 sites in exchange for the real property at 56 sites as well as 17 sites previously owned and operated by the Partnership. Although we no longer collect rentour merchandise was purchased from the sites divested in these transactions, we continue to distribute fuel to them on a wholesale basis.1 supplier.
Effective March 25, 2020, we closed on the CST Fuel Supply Exchange. Through this transaction, we acquired 33 sites, wholesale fuel supply to 331 additional sites and $14.1 million in proceeds in exchange for our investment in CST Fuel Supply.
On April 14, 2020, we closed on the acquisition of retail and wholesale assets. Through these transactions, we expanded the retail operations of the Partnership by 169 sites (154 company operated sites and 15 commission sites) through a combination of (1) entering into new leasing arrangements with related parties as the lessee for 62 sites and (2) terminating contracts where we were previously the lessor and fuel supplier under dealer arrangements for 107 sites that then became company operated sites. As a result of closing on these transactions, we expanded our wholesale fuel distribution by 110 sites, including 53 third-party wholesale dealer contracts, and supply of the 62 newly leased sites.
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 have 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 first half ofcontinued to recover in 2021 and 2022, we cannot predict the scope and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows.business. Sustained decreases in fuel volume or erosion of margin could have a material adverse effect on our results of operations, cash flow, financial position and ultimately our ability to pay distributions.
5
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. ACQUISITION OF ASSETS FROM 7-ELEVEN
On April 28, 2021, certain newly formed subsidiariesIn February 2022, we closed on the final 3 properties of CrossAmerica, including Joe’s Kwik Marts (collectively, “Buyer”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) withour 106-site acquisition from 7-Eleven Inc., a Texas corporation (“7-Eleven”), pursuant to which Buyer agreed to purchase certain assets related to the ownership and operations of 106 company operated sites (90 fee; 16 leased)located in the Mid-Atlantic and Northeast regions of the U.S. (collectively, the “Properties”) for an aggregate purchase price of $263.0 million, subject to adjustment in accordance with the terms of the Asset Purchase Agreement. The assets are being sold by 7-Eleven as part of a divestiture process in connection with its previously announced acquisition of the Speedway business from Marathon Petroleum Corporation (“MPC”).
The assets being purchased by Buyer include real property and leasehold rights to the Properties, and all inventory and other assets located at the Properties, other than specific excluded assets, such as rights to intellectual property or rights with respect to “7-Eleven” or “Speedway” branding. The vast majority of the sites being purchased have been operating under the Speedway brand, and all sites are being rebranded in connection with the closing of such site pursuant to the Asset Purchase Agreement. Buyer is also assuming certain specified liabilities associated with the assets.
The Asset Purchase Agreement contains customary representations, warranties, agreements and obligations of the parties, including covenants regarding the conduct of the business at the Properties prior to the applicable closing of such Property.
Buyer is closing the acquisition of the Properties on a rolling basis of generally 10 sites per week. In late June 2021, Buyer consummated the initial closing under the Asset Purchase Agreement, which consisted of 2 Properties for a purchase price of $4.2$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 |
| $ | 202 |
|
Other current assets |
|
| 4 |
|
Property and equipment |
|
| 2,318 |
|
Intangible assets |
|
| 1,730 |
|
Total assets |
| $ | 4,254 |
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
| 10 |
|
Asset retirement obligations |
|
| 78 |
|
Total liabilities |
| $ | 88 |
|
Net assets acquired |
| $ | 4,166 |
|
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 |
| ||
Total consideration, net of cash acquired |
| $ | 1,885 |
|
AcquisitionsThe fair value of inventory was estimated at retail selling price less estimated costs to sell and Related Transactions occurring Subsequenta 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 June 30 2021 years for equipment.
Through August 5, 2021, Buyer consummatedThe fair value of the acquisitionwholesale fuel distribution rights included in intangible assets was based on an income approach. Management believes the level and timing of 32 Propertiescash 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 an aggregateseparate recognition, and other factors. All goodwill is anticipated to be deductible for tax purposes.
Management continues to review the valuation and is confirming the result to determine the final purchase price allocation. We anticipate finalizing purchase accounting during the second quarter of $106.2 million. 2022.
We are fundingfunded these transactions primarily through a new credit facility further described belowthe JKM Credit Facility as well as undrawn capacity under our existing revolving credit facilitythe CAPL Credit Facility and cash on hand. We anticipate that we will complete the acquisition early in the fourth quarter of 2021.
JKM Credit Facility6
On July 16, 2021, CAPL JKM Partners LLC (“Borrower”), an indirect wholly-owned subsidiary of CrossAmerica, entered into a Credit Agreement, as amended on July 29, 2021 (the “JKM Credit Facility”) among Borrower, CAPL JKM Holdings LLC (“Holdings”), an indirect wholly-owned subsidiary of CrossAmerica and the sole member of Borrower, and Manufacturers and Traders Trust Company, as administrative agent, swingline lender and issuing bank.
6
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The JKM Credit Facility provides for a $200 million senior secured credit facility, consisting of a $185 million delayed draw term loan facility (the “Term Loan Facility”) and a $15 million revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility permits up to $7.5 million of swingline borrowings and $5.0 million in letters of credit. The interest rate applicable to loans outstanding under the JKM Credit Facility is equal to, at Borrower’s option, either (i) a base rate plus a margin (which will be determined based on Borrower’s consolidated leverage ratio) ranging from 0.50% to 1.50% per annum or (ii) LIBOR plus a margin (which will also be determined based on Borrower’s consolidated leverage ratio) ranging from 1.50% to 2.50% per annum. Commencing on the earliest of (a) the date on which the entire amount of the Term Loan Facility has been drawn, (b) the date on which the Term Loan Facility has been terminated or reduced to 0 pursuant to the JKM Credit Facility, and (c) April 16, 2022, the Term Loan Facility will amortize in equal quarterly installments equal to 1.50% of the unpaid principal amount of the Term Loan Facility, with the balance payable on the maturity date of the Term Loan Facility. Letters of credit are subject to a 0.125% fronting fee and other customary administrative charges. Standby letters of credit will accrue a fee at a rate based on the applicable margin of LIBOR loans. In addition, beginning in October 2021, a commitment fee will be charged based on the unused portion of the JKM Credit Facility at a rate ranging from 0.25% to 0.375% per annum depending on Borrower’s consolidated leverage ratio. The JKM Credit Facility will mature on July 16, 2026.
The obligations under the JKM Credit Facility are guaranteed by Holdings and its subsidiaries (other than Borrower) and secured by a lien on substantially all of the assets of Holdings and its subsidiaries (including Borrower). The obligations under the JKM Credit Facility are nonrecourse to CrossAmerica and its subsidiaries other than Holdings, Borrower 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. The JKM Credit Facility also contains financial covenants requiring Borrower to comply with, as of the last day of each fiscal quarter of Borrower commencing with Borrower’s fiscal quarter ending December 31, 2021, (i) a maximum consolidated leverage ratio of 6.25 to 1.00, with step-downs to 6.00 to 1.00, 5.75 to 1.00, 5.50 to 1.00 and 5.25 to 1:00 on March 31, 2022, March 31, 2023, March 31, 2024 and March 31, 2025, respectively, and (ii) a minimum fixed charge coverage ratio of 1.10 to 1.00.
If an event of default under the JKM Credit Facility occurs and is continuing, the commitments thereunder may be terminated and the principal amount outstanding thereunder, together with all accrued unpaid interest and other amounts owed thereunder, may be declared immediately due and payable.
As of August 5, 2021, we had $64.4 million outstanding under our Term Loan Facility.
Amendment to CAPL Credit Facility
On July 28, 2021, the Partnership entered into an amendment (the “Amendment”) to its Credit Agreement, dated as of April 1, 2019 (as previously amended by the First Amendment to Credit Agreement, dated as of November 19, 2019, the “CAPL Credit Facility”), 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. The Amendment, among other things, (i) amended certain provisions relating to unrestricted subsidiaries, (ii) increased the maximum level for the consolidated leverage ratio financial covenant to 6.00 to 1.00 for the fiscal quarters ending September 30, 2021 and December 31, 2021, 5.75 to 1.00 for the fiscal quarter ending March 31, 2022, 5.50 to 1.00 for the fiscal quarter ending June 30, 2022, and 5.25 to 1.00 for the fiscal quarter ending September 30, 2022, after which the maximum level generally reverts to 4.75 to 1.00 unless in a specified acquisition period or a qualified note offering has occurred, and (iii) modified the applicable margin for borrowings under the CAPL Credit Facility (as amended by the Amendment), such that borrowings will bear interest, at the Partnership’s option, at either LIBOR plus a margin ranging from 1.50% to 3.00% per annum or a base rate plus a margin ranging from 0.50% to 2.00% per annum (in each case depending on the Partnership’s consolidated leverage ratio).
7
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. ASSETS HELD FOR SALE
We have classified 1710 sites and 2512 sites as held for sale at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, which are expected to be sold within one year of such classification. Assets held for sale were as follows (in thousands):
|
| June 30, |
|
| December 31, |
|
| March 31, |
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Land |
| $ | 4,258 |
|
| $ | 7,889 |
|
| $ | 2,219 |
| $ | 3,042 |
| |
Buildings and site improvements |
|
| 1,513 |
|
|
| 2,784 |
|
| 2,299 |
| 2,231 |
| |||
Equipment |
|
| 841 |
|
|
| 1,152 |
|
|
| 840 |
|
|
| 939 |
|
Total |
|
| 6,612 |
|
|
| 11,825 |
|
| 5,358 |
| 6,212 |
| |||
Less accumulated depreciation |
|
| (1,059 | ) |
|
| (1,927 | ) |
|
| (1,183 | ) |
|
| (1,305 | ) |
Assets held for sale |
| $ | 5,553 |
|
| $ | 9,898 |
|
| $ | 4,175 |
|
| $ | 4,907 |
|
The Partnership has continued to focus on divesting lower performing assets. During the three and six months ended June 30, 2021,March 31, 2022, we sold 6 and 94 properties for $3.0 million and $3.9$1.5 million in proceeds, resulting in a net gainsgain of $1.1 million and $1.1 million, respectively.$0.3 million. During the three and six months ended June 30, 2020,March 31, 2021, we sold 7 and 133 properties for $4.4$0.9 million and $9.5 million ofin proceeds, resulting in an insignificant net gains of $0.2 million and $1.8 million, respectively.loss.
See Note 5 for information regarding impairment charges primarily recorded upon classifying sites within assets held for sale.
Note 4. INVENTORIES
Inventories consisted of the following (in thousands):
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Retail site merchandise |
| $ | 22,611 |
|
| $ | 22,518 |
|
Motor fuel |
|
| 30,070 |
|
|
| 23,582 |
|
Inventories |
| $ | 52,681 |
|
| $ | 46,100 |
|
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Retail site merchandise |
| $ | 12,755 |
|
| $ | 11,969 |
|
Motor fuel |
|
| 11,659 |
|
|
| 11,284 |
|
Inventories |
| $ | 24,414 |
|
| $ | 23,253 |
|
Note 5. 5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
|
| June 30, |
|
| December 31, |
|
| March 31, |
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Land |
| $ | 241,631 |
|
| $ | 241,585 |
|
| $ | 326,964 |
| $ | 321,813 |
| |
Buildings and site improvements |
|
| 285,797 |
|
|
| 284,593 |
|
| 361,145 |
| 358,335 |
| |||
Leasehold improvements |
|
| 11,191 |
|
|
| 10,684 |
|
| 13,570 |
| 13,437 |
| |||
Equipment |
|
| 254,257 |
|
|
| 236,420 |
|
| 321,366 |
| 314,393 |
| |||
Construction in progress |
|
| 11,546 |
|
|
| 15,919 |
|
|
| 10,290 |
|
|
| 9,457 |
|
Property and equipment, at cost |
|
| 804,422 |
|
|
| 789,201 |
|
| 1,033,335 |
| 1,017,435 |
| |||
Accumulated depreciation and amortization |
|
| (241,573 | ) |
|
| (218,345 | ) |
|
| (276,103 | ) |
|
| (261,981 | ) |
Property and equipment, net |
| $ | 562,849 |
|
| $ | 570,856 |
|
| $ | 757,232 |
|
| $ | 755,454 |
|
We recorded impairment charges of $2.9$0.7 million and $0.3$2.3 million during the three months ended June 30,March 31, 2022 and 2021, and 2020 and $5.2 million and $5.5 million during the six months ended June 30, 2021 and 2020, 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.
87
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6.INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
|
| June 30, 2021 |
|
| December 31, 2020 |
|
| March 31, 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 |
| $ | 183,078 |
|
| $ | (98,392 | ) |
| $ | 84,686 |
|
| $ | 187,643 |
|
| $ | (95,694 | ) |
| $ | 91,949 |
|
| $ | 208,697 |
| $ | (104,266 | ) |
| $ | 104,431 |
| $ | 212,194 |
| $ | (99,124 | ) |
| $ | 113,070 |
| |||
Trademarks/licenses |
|
| 1,898 |
|
|
| (1,142 | ) |
|
| 756 |
|
|
| 1,898 |
|
|
| (1,115 | ) |
|
| 783 |
|
| 2,208 |
| (1,193 | ) |
| 1,015 |
| 2,208 |
| (1,174 | ) |
| 1,034 |
| |||||||||
Covenant not to compete |
|
| 450 |
|
|
| (322 | ) |
|
| 128 |
|
|
| 4,552 |
|
|
| (4,372 | ) |
|
| 180 |
|
|
| 450 |
|
|
| (390 | ) |
|
| 60 |
|
|
| 450 |
|
|
| (367 | ) |
|
| 83 |
|
Total intangible assets |
| $ | 185,426 |
|
| $ | (99,856 | ) |
| $ | 85,570 |
|
| $ | 194,093 |
|
| $ | (101,181 | ) |
| $ | 92,912 |
|
| $ | 211,355 |
|
| $ | (105,849 | ) |
| $ | 105,506 |
|
| $ | 214,852 |
|
| $ | (100,665 | ) |
| $ | 114,187 |
|
See Note 2 regarding the purchase accounting for the final 3 sites acquired from 7-Eleven.
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 March 31, 2022 |
| $ | 81,590 |
|
| $ | 17,819 |
|
| $ | 99,409 |
|
See Note 2 regarding the purchase accounting for the final 3 sites acquired from 7-Eleven.
Note 8. DEBT
Our balances for long-term debt and finance lease obligations were as follows (in thousands):
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
CAPL Credit Facility |
| $ | 533,781 |
|
| $ | 513,180 |
|
| $ | 630,000 |
| $ | 630,575 |
| |
JKM Credit Facility |
| 163,580 |
| 182,460 |
| |||||||||||
Finance lease obligations |
|
| 18,394 |
|
|
| 20,007 |
|
|
| 16,150 |
|
|
| 16,809 |
|
Total debt and finance lease obligations |
|
| 552,175 |
|
|
| 533,187 |
|
| 809,730 |
| 829,844 |
| |||
Current portion |
|
| 2,679 |
|
|
| 2,631 |
|
|
| 2,774 |
|
|
| 10,939 |
|
Noncurrent portion |
|
| 549,496 |
|
|
| 530,556 |
|
| 806,956 |
| 818,905 |
| |||
Deferred financing costs, net |
|
| 2,737 |
|
|
| 3,257 |
|
|
| 7,922 |
|
|
| 8,270 |
|
Noncurrent portion, net of deferred financing costs |
| $ | 546,759 |
|
| $ | 527,299 |
|
| $ | 799,034 |
|
| $ | 810,635 |
|
8
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
See Note 13 for information regarding the issuance of preferred membership interests, the proceeds of which were used to pay off borrowings under the Term Loan Facility. As of March 31, 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 |
| $ | — |
|
| $ | 2,438 |
|
| $ | 2,438 |
|
2023 |
|
| 8,261 |
|
|
| 3,328 |
|
|
| 11,589 |
|
2024 |
|
| 641,015 |
|
|
| 3,427 |
|
|
| 644,442 |
|
2025 |
|
| 11,015 |
|
|
| 3,527 |
|
|
| 14,542 |
|
2026 |
|
| 133,290 |
|
|
| 3,629 |
|
|
| 136,919 |
|
2027 |
|
| — |
|
|
| 1,220 |
|
|
| 1,220 |
|
Total future payments |
|
| 793,581 |
|
|
| 17,569 |
|
|
| 811,150 |
|
Less impact of discounting |
|
| — |
|
|
| 1,420 |
|
|
| 1,420 |
|
|
|
| 793,581 |
|
|
| 16,149 |
|
|
| 809,730 |
|
Current portion |
|
| — |
|
|
| 2,774 |
|
|
| 2,774 |
|
Long-term portion |
| $ | 793,581 |
|
| $ | 13,375 |
|
| $ | 806,956 |
|
CAPL Credit Facility
Our CAPL Credit Facility is secured by substantially all of our assets, including our equity interest in CAPL JKM Holdings, LLC, other than the assets of unrestricted subsidiaries designated as such under the CAPL Credit Facility. CAPL JKM Holdings LLC 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 March 31, 2022 was 2.9% (our applicable margin was 2.5% as of March 31, 2022).
Letters of credit outstanding at June 30, 2021March 31, 2022 and December 31, 20202021 totaled $4.0$4.0 million.
As of March 31, 2022, we were in compliance with our financial covenants under the CAPL Credit Facility. The amount of availability under the CAPL Credit Facility at June 30, 2021,March 31, 2022, after taking into consideration debt covenant restrictions, was $135.0$116.0 million.
Financial CovenantsJKM Credit Facility
The obligations under the JKM Credit Facility are guaranteed by Holdings and Interest Rateits 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 CAPLJKM Credit Facility contains customary events of default and covenants, including, among other things, and subject to certain financial covenants. We are requiredexceptions, covenants that restrict the ability of Holdings and its subsidiaries to maintain a consolidated leverage ratio for the most recently completed four fiscal quarterscreate or incur liens on assets, make investments, incur additional indebtedness, merge or consolidate and dispose of 4.75 to 1.00. Such threshold is increased to 5.50 to 1.00 for the quarter during a specified acquisition period (as defined in the CAPL Credit Facility). Upon the occurrence of a qualified note offering (as defined in the CAPL Credit Facility), the consolidated leverage ratio when not in a specified acquisition period is increased to 5.25 to 1.00, while the specified acquisition period threshold remains 5.50 to 1.00. Upon the occurrence of a qualified note offering, we are also required to maintain a consolidated senior secured leverage ratio (as defined in the CAPL Credit Facility) for the most recently completed four fiscal quarter period of not greater than 3.75 to 1.00. Such threshold is increased to 4.00 to 1.00 for the quarter during a specified acquisition period. We are also required to maintain a consolidated interest coverage ratio (as defined in the CAPL Credit Facility) of at least 2.50 to 1.00. As of June 30, 2021, we were in a specified acquisition period and so our maximum consolidated leverage ratio was 5.50 to 1.00. We were in compliance with these financial covenants.assets.
Our borrowings under the CAPLJKM Credit Facility had a weighted-average interest rate of 2.1%2.8% as of June 30, 2021March 31, 2022 (LIBOR plus an applicable margin, which was 2.0%2.5% as of June 30, 2021)March 31, 2022).
See Note 8 for information related toLetters of credit outstanding at March 31, 2022 and December 31, 2021 totaled $0.8 million.
As of March 31, 2022, we were in compliance with our interest rate swap contracts.
See Note 2 for information regarding our newfinancial covenants under the JKM Credit Facility. The amount of availability under the JKM Credit Facility and amendment to our CAPL Credit Facility, both dated in July 2021.at March 31, 2022, after taking into consideration debt covenant restrictions, was $9.6 million.
9
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8.9. 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 7.8. To hedge against interest rate volatility on our variable rate borrowings under the CAPL Credit Facility, on March 26, 2020, we entered into an3 interest rate swap contract. Thecontracts in 2020 that mature on April 1, 2024. One interest rate swap contract has a notional amount of $150$150 million and a fixed rate of 0.495% and matures on April 1, 2024. On April 15, 2020, we entered into 2 additional0.495%. The other interest rate swap contracts each withhave a notional amountsamount of $75$75 million and a fixed rate of 0.38% and that mature on April 1, 2024.0.38%. 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 accrued expenses and other current liabilitiesassets and the noncurrent portion is included in other long-term liabilities was insignificantassets, totaled $11.4 million and $2.5$3.0 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. See Note 1112 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 loss from settlements of the interest rate swap contracts of $0.3$0.2 million and an insignificant amount for the three months ended June 30, 2021March 31, 2022 and 2020 and $0.5 million and an insignificant amount for the six months ended June 30, 2021 and 2020, respectively.2021.
We currently estimate that a lossgain of $1.0$4.2 million will be reclassified from accumulated other comprehensive lossAOCI 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 9.10. RELATED-PARTY TRANSACTIONS
Wholesale Motor Fuel Sales and Real Estate Rentals
Revenues from motor fuel sales and rental income from DMS for the three and six months ended June 30, 2020 were as follows (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||
|
| June 30, 2020 |
|
| June 30, 2020 |
|
| ||
Revenues from motor fuel sales to DMS |
| $ | 7,125 |
|
| $ | 29,234 |
|
|
Rental income from DMS |
|
| 183 |
|
|
| 1,395 |
|
|
As a result of the acquisition of retail and wholesale assets as further described under “Prior Year Acquisitions” in Note 1, as of April 14, 2020, we 0 longer have any revenue from DMS.
Revenues from TopStar, an entity affiliated with Joseph V. Topper, Jr., a member of the Board, were $14.6$17.1 million and $2.8$11.2 million for the three months ended June 30,March 31, 2022 and 2021, and 2020 and $25.8 million and $2.8 million for the six months ended June 30, 2021 and 2020, respectively. Accounts receivable from TopStar were $0.9$0.8 million and $0.7$1.3 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Effective April 14, 2020, we acquired wholesale fuel supply rights, including this supply contract, as part of the acquisition of retail and wholesale assets. Prior to April 14, 2020, we were only leasing motor fuel stations to TopStar.
CrossAmerica leases real estate from the Topper Group. Rent expense under these lease agreements including rent paid under the leases entered into in connection with the acquisition of retail and wholesale assets, was $2.2$2.4 million and $1.6$2.3 million for the three months ended June 30,March 31, 2022 and 2021, and 2020 and $4.5 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively.
10
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Topper Group Omnibus Agreement
We incurred expenses under the Topper Group Omnibus Agreement, including costs for store level personnel at our company operated sites, since our April 2020 acquisition of retail and wholesale assets, totaling $13.0$20.1 million and $10.6$12.8 million for the three months ended June 30,March 31, 2022 and 2021, and 2020 and $25.8 million and $14.2 million for the six months ended June 30, 2021 and 2020, respectively. Such expenses are included in operating expenses and general and administrative expenses in the statementstatements of operations. Amounts payable to the Topper Group related to expenses incurred by the Topper Group on our behalf in accordance with the Topper Group Omnibus Agreement totaled $3.9$5.6 million and $3.7$3.7 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
IDR and Common Unit Distributions and Other Equity Transactions
We distributed $9.7$7.7 million and $9.7$9.7 million to the Topper Group related to its ownership of our common units during the three months ended June 30,March 31, 2022 and 2021, and 2020 and $19.4respectively.
We distributed $2.6 million and $17.7 million for the six months ended June 30, 2021 and 2020, respectively. We distributed $0.1$0.5 million to the Topper Groupaffiliates of John B. Reilly, III related to itstheir ownership of our IDRscommon units during the sixthree months ended June 30, 2020. On February 6, 2020, we closed onMarch 31, 2022 and 2021, respectively.
See Note 13 for information regarding the Equity Restructuring Agreement that eliminated the IDRs.issuance of preferred membership interests to related parties.
Maintenance and Environmental Costs
Certain maintenance and environmental remediation activities are performed by an 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$0.3 million and $0.2$0.4 million for the three months ended June 30,March 31, 2022 and 2021, and 2020 and $0.9 million and $0.3 million for the six months ended June 30, 2021 and 2020, respectively. Accounts payable to this related party amounted to $0.3 million and $0.1$0.3 million at June 30, 2021 and DecemberMarch 31, 2020, respectively.2022.
Environmental Compliance and Inventory Management Costs10
CROSSAMERICA PARTNERS LP
We use certain environmental monitoring and inventory management equipment and services provided by an entity affiliated with the Topper Group, as approved by the independent conflicts committee of the Board. We incurred charges with this related party of $0.1 million and an insignificant amount for the three months ended June 30, 2021 and 2020 and $0.2 million and an insignificant amount for the six months ended June 30, 2021 and 2020, respectively.CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in connection with the April 2020 acquisition of retail and wholesale assets.Board. Merchandise costs amounted to $5.0$4.5 million and $5.1$4.2 million for three months ended June 30,March 31, 2022 and 2021, and 2020 and $9.2 million and $5.1 million for the six months ended June 30, 2021 and 2020, respectively. Amounts payable to this related party amounted to $1.9$2.0 million and $1.5$1.5 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Vehicle Lease
In connection with the services rendered under the Topper Group 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, 2021March 31, 2022 and 2020.2021.
Principal Executive Offices
Our principal executive offices are in Allentown, Pennsylvania. We subleaselease office space from the Topper Group that the Topper Group 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. Rent expense amounted to $0.4$0.2 million and $0.3 million for each of the three months ended June 30, 2021March 31, 2022 and 2020 and $0.7 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively.2021.
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, 2021March 31, 2022 and 2020.
11
CROSSAMERICA PARTNERS LP2021.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10.11. 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 sixthree months ended June 30, 2021March 31, 2022 or 2020.2021.
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 an accrual when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In addition, we disclose matters for which management believes a material loss is at least reasonably possible. 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 currently own or lease retail sites where refined petroleum products are being or have been handled. These retail sites and the refined petroleum products handled thereon may be subject to federal and state environmental laws and regulations. Under such laws and regulations, we could be required to remove or remediate containerized hazardous liquids or associated generated wastes (including wastes disposed of or abandoned by prior owners or operators), to remediate contaminated property arising from the release of liquids or wastes into the environment, including contaminated groundwater, or to implement best management practices to prevent future contamination.
We maintain insurance of various types with varying levels of coverage that is considered adequate under the circumstances to cover operations and properties. The insurance policies are subject to deductibles that are considered reasonable and not excessive. In addition, we have entered into indemnification and escrow agreements with various sellers in conjunction with several of their respective acquisitions, as further described below. Financial responsibility for environmental remediation is negotiated in connection with each acquisition transaction. In each case, an assessment is made of potential environmental liability exposure based on available information. Based on that assessment and relevant economic and risk factors, a determination is made whether to, and the extent to which we will, assume liability for existing environmental conditions.
Environmental liabilities recorded on the balance sheet within accrued expenses and other current liabilities and other long-term liabilities totaled $5.7$7.5 million and $3.9$5.4 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Indemnification assets related to third-party escrow funds, state funds or insurance recorded on the balance sheet within other current assets and other noncurrent assets totaled $4.2$5.6 million and $3.1$3.2 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. State funds represent probable state reimbursement amounts. Reimbursement will depend upon the continued maintenance and solvency of the state. Insurance coverage represents amounts deemed probable of reimbursement under insurance policies.
The estimates used in these reserves are based on all known facts at the time and an assessment of the ultimate remedial action outcomes. We will adjust loss accruals as further information becomes available or circumstances change. Among the many uncertainties that impact the estimates are the necessary regulatory approvals for, and potential modifications of remediation plans, the amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment and the possibility of existing legal claims giving rise to additional claims.
Environmental liabilities related to the sites contributed to the Partnership in connection with our IPO have not been assigned to us and are still the responsibility of the Predecessor Entity. The Predecessor Entity indemnified us for any costs or expenses that we incur for environmental liabilities and third-party claims, regardless of when a claim is made, that are based on environmental conditions in existence prior to the closing of the IPO for contributed sites. As such, these environmental liabilities and indemnification assets are not recorded on the balance sheet of the Partnership.
12
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Similarly, we have generally been indemnified with respect to known contamination at sites acquired from third parties.parties, including our acquisition of certain assets from 7-Eleven. As such, these environmental liabilities and indemnification assets are also not recorded on the balance sheet of the Partnership.
Note 11.12. FAIR VALUE MEASUREMENTS
We measure and report certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). U.S. GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation.
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels in 20212022 or 2020.2021.
As further discussed in Note 8,9, 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 2.2 measurements.
As further discussed in Note 12 we
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have accrued for unvested phantom units and phantom performance units as a liability and adjust that liability on a recurring basis based on the market price of our common units each balance sheet date. These fair value measurements are classified as Level 1.1 measurements.
The fair value of our accounts receivable, notes receivable, and accounts payable approximated their carrying values as of June 30, 2021March 31, 2022 and December 31, 20202021 due to the short-term maturity of these instruments. The fair valuevalues of borrowings under the CAPL Credit Facility and JKM Credit Facility approximated itstheir carrying values as of June 30, 2021March 31, 2022 and December 31, 20202021 due to the frequency with which interest rates are reset and the consistency of the market spread.
Note 13. PREFERRED MEMBERSHIP INTERESTS
Note 12. EQUITY-BASED COMPENSATION
Equity-based compensation expense was $0.4 millionOn March 29, 2022, Holdings issued and insignificant for the three months ended June 30, 2021 and 2020 and $0.8 million and insignificant for the six months ended June 30, 2021 and 2020, respectively. The liability for equity-based awards was $0.9 million and insignificant at June 30, 2021 and December 31, 2020, respectively.
In February 2021, the Partnership granted 1,509 phantom unitssold 12,500 newly created Series A Preferred Interests (“Series A Preferred Interests”) to each of 3 non-employee directors(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 asprior 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 director compensation. In July 2021, 16,833 phantom units vested, including those grantedthe outstanding indebtedness under the Term Loan Facility. As a result of this prepayment, CAPL JKM Partners does not need to make a principal payment on the Term Loan Facility until April 1, 2023. See Note 12 for additional information on the Term Loan Facility.
The preferred membership interests are presented in February 2021.
In July 2021,mezzanine equity on the Partnership granted 3,252 phantom units to each of 5 non-employee directors ofbalance sheet and the Board. Such awardscarrying amount will vest in July 2022, conditioned upon continuous service as non-employee directors. These awards were accompanied by tandem distribution equivalent rights that entitle the holder to cash payments equalbe accreted to the amount of unit distributions authorized to be paid to the holders of our common units.Exchange Price over time.
13
CROSSAMERICA PARTNERS LP
During the second quarter of 2021, 6,090 phantom units and performance-based awards with an initial target value of $0.1 million were forfeited.CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13.14. 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 are subject to a statutory requirement that non-qualifying income, as defined by the Internal Revenue Code, cannot exceed 10%10% of total gross income for the calendar year. If non-qualifying income exceeds this statutory limit, we would be taxed as a corporation. The non-qualifying income did not exceed the statutory limit in any annual period.
13
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain activities that generate non-qualifying income are conducted through our wholly owned taxable corporate subsidiaries, LGWS and Joe’s Kwik Marts.subsidiaries. Current and deferred income taxes are recognized on the earnings of these subsidiaries. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates.
We recorded an income tax benefit of $0.3$1.9 million and $2.9$0.3 million for the three months ended June 30,March 31, 2022 and 2021, and 2020 and $0.6 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively, as a result of the losses incurred by our corporate subsidiaries. The effective tax rate differs from the combined federal and state statutory rate primarily because only LGWS and Joe’s Kwik Martsour taxable subsidiaries are subject to income tax.
Note 14.15. NET INCOME PER LIMITED PARTNER UNIT
We compute income per unit using the two-class method under which any excess of distributions declared over net income shall be allocated to the partners based on their respective sharing of income as specified in the Partnership Agreement. Net income per unit applicable to limited partners is computed by dividing the limited partners’ interest in net income after deducting the IDRs, by the weighted-average number of outstanding common units.
Since February 6, 2020, our common units areWe applied the only participating securities. On February 6, 2020, we closedif-converted method to the preferred membership interests in accordance with Accounting Standards Update No. 2020-06 for purposes of computing diluted earnings per unit. The impact on diluted earnings per unit for the Equity Restructuring Agreement that eliminatedfirst quarter of 2022 was insignificant given the IDRs.timing of the issuance of the preferred membership interests.
The following table provides a reconciliation of net income and weighted-average units used in computing basic and diluted net income per limited partner unit for the following periods (in thousands, except unit and per unit amounts):
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Numerator: |
|
|
|
|
|
| ||
Distributions paid |
| $ | 19,942 |
|
| $ | 19,912 |
|
Allocation of distributions in excess of net income |
|
| (14,895 | ) |
|
| (23,879 | ) |
Limited partners’ interest in net income - basic and diluted |
| $ | 5,047 |
|
| $ | (3,967 | ) |
Denominator: |
|
|
|
|
|
| ||
Weighted-average common units outstanding - basic |
|
| 37,900,146 |
|
|
| 37,869,259 |
|
Adjustment for phantom and phantom performance units |
|
| 35,893 |
|
|
| — |
|
Adjustment for preferred membership interests |
|
| 23,402 |
|
|
| — |
|
Weighted-average common units outstanding - diluted |
|
| 37,959,441 |
|
|
| 37,869,259 |
|
Net income per common unit - basic and diluted |
| $ | 0.13 |
|
| $ | (0.10 | ) |
|
|
|
|
|
|
| ||
Distributions paid per common unit |
| $ | 0.5250 |
|
| $ | 0.5250 |
|
Distributions declared (with respect to each respective period) per common unit |
| $ | 0.5250 |
|
| $ | 0.5250 |
|
Distributions
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid |
| $ | 19,916 |
|
| $ | 19,881 |
|
| $ | 39,828 |
|
| $ | 37,992 |
|
Allocation of distributions in excess of net income |
|
| (15,127 | ) |
|
| (14,651 | ) |
|
| (39,006 | ) |
|
| 39,166 |
|
Limited partners’ interest in net income - basic and diluted |
| $ | 4,789 |
|
| $ | 5,230 |
|
| $ | 822 |
|
| $ | 77,158 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average limited partnership units outstanding - basic |
|
| 37,874,868 |
|
|
| 37,736,329 |
|
|
| 37,872,079 |
|
|
| 36,865,651 |
|
Adjustment for phantom and phantom performance units |
|
| 30,142 |
|
|
| 1,821 |
|
|
| 30,146 |
|
|
| 1,844 |
|
Weighted-average limited partnership units outstanding - diluted |
|
| 37,905,010 |
|
|
| 37,738,150 |
|
|
| 37,902,225 |
|
|
| 36,867,495 |
|
Net income per limited partnership unit - basic and diluted |
| $ | 0.13 |
|
| $ | 0.14 |
|
| $ | 0.02 |
|
| $ | 2.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid per common unit |
| $ | 0.5250 |
|
| $ | 0.5250 |
|
| $ | 1.0500 |
|
| $ | 1.0500 |
|
Distributions declared (with respect to each respective period) per common unit |
| $ | 0.5250 |
|
| $ | 0.5250 |
|
| $ | 1.0500 |
|
| $ | 1.0500 |
|
Distributions
Distribution activity for 20212022 is as follows:
Quarter Ended |
| Record Date |
| Payment Date |
| Cash |
|
| Cash |
| ||
December 31, 2021 |
| February 3, 2022 |
| February 10, 2022 |
| $ | 0.5250 |
|
| $ | 19,942 |
|
March 31, 2022 |
| May 3, 2022 |
| May 11, 2022 |
|
| 0.5250 |
|
|
| 19,951 |
|
14
Quarter Ended |
| Record Date |
| Payment Date |
| Cash Distribution (per unit) |
|
| Cash Distribution (in thousands) |
| ||
December 31, 2020 |
| February 2, 2021 |
| February 9, 2021 |
| $ | 0.5250 |
|
| $ | 19,912 |
|
March 31, 2021 |
| May 4, 2021 |
| May 11, 2021 |
|
| 0.5250 |
|
|
| 19,916 |
|
June 30, 2021 |
| August 3, 2021 |
| August 10, 2021 |
|
| 0.5250 |
|
|
| 19,924 |
|
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
14
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15.16. SEGMENT REPORTING
We conduct our business in 2 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 (through the closing of the acquisition of retail and wholesale assets as further described under “Prior Year Acquisitions” in Note 1) 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 had motor fuel distribution and lease agreements with DMS (through the closing of the acquisition ofThe retail and wholesale assets). The Retail segment includes the retail sale of motor fuel at retail sites operated by commission agents and the sale of convenience merchandise items and the retail sale of motor fuel at company operated sites. A commission agent site is a retail site where we retain title to the motor fuel inventory and sell it directly to our end user customers. At commission agent retail sites, we manage motor fuel inventory pricing and retain the gross profit on motor fuel sales, less a commission to the agent who operates the retail site. Similar to our Wholesalewholesale segment, we also generate revenues through leasing or subleasing real estate in our Retailretail segment.
Unallocated items consist primarily of general and administrative expenses, depreciation, amortization and accretion expense, gains on 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 March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues from fuel sales to external customers |
| $ | 583,121 |
|
| $ | 422,242 |
|
| $ | — |
|
| $ | 1,005,363 |
|
Intersegment revenues from fuel sales |
|
| 344,001 |
|
|
| — |
|
|
| (344,001 | ) |
|
| — |
|
Revenues from food and merchandise sales |
|
| — |
|
|
| 62,347 |
|
|
| — |
|
|
| 62,347 |
|
Rent income |
|
| 17,477 |
|
|
| 3,150 |
|
|
| — |
|
|
| 20,627 |
|
Other revenue |
|
| 1,786 |
|
|
| 3,088 |
|
|
| — |
|
|
| 4,874 |
|
Total revenues |
| $ | 946,385 |
|
| $ | 490,827 |
|
| $ | (344,001 | ) |
| $ | 1,093,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income (loss) |
| $ | 36,857 |
|
| $ | 676 |
|
| $ | (27,814 | ) |
| $ | 9,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues from fuel sales to external customers |
| $ | 398,493 |
|
| $ | 197,487 |
|
| $ | — |
|
| $ | 595,980 |
|
Intersegment revenues from fuel sales |
|
| 144,452 |
|
|
| — |
|
|
| (144,452 | ) |
|
| — |
|
Revenues from food and merchandise sales |
|
| — |
|
|
| 37,839 |
|
|
| — |
|
|
| 37,839 |
|
Rent income |
|
| 17,700 |
|
|
| 2,772 |
|
|
| — |
|
|
| 20,472 |
|
Other revenue |
|
| 1,134 |
|
|
| 1,859 |
|
|
| — |
|
|
| 2,993 |
|
Total revenues |
| $ | 561,779 |
|
| $ | 239,957 |
|
| $ | (144,452 | ) |
| $ | 657,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income (loss) |
| $ | 24,905 |
|
| $ | 293 |
|
| $ | (26,062 | ) |
| $ | (864 | ) |
|
| Wholesale |
|
| Retail |
|
| Unallocated |
|
| Consolidated |
| ||||
Three Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from fuel sales to external customers |
| $ | 530,099 |
|
| $ | 260,125 |
|
| $ | — |
|
| $ | 790,224 |
|
Intersegment revenues from fuel sales |
|
| 198,878 |
|
|
| — |
|
|
| (198,878 | ) |
|
| — |
|
Revenues from food and merchandise sales |
|
| — |
|
|
| 45,208 |
|
|
| — |
|
|
| 45,208 |
|
Rent income |
|
| 18,209 |
|
|
| 2,653 |
|
|
| — |
|
|
| 20,862 |
|
Other revenue |
|
| 729 |
|
|
| 2,311 |
|
|
| — |
|
|
| 3,040 |
|
Total revenues |
| $ | 747,915 |
|
| $ | 310,297 |
|
| $ | (198,878 | ) |
| $ | 859,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
| $ | 33,244 |
|
| $ | 953 |
|
| $ | (26,035 | ) |
| $ | 8,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from fuel sales to external customers |
| $ | 219,337 |
|
| $ | 120,208 |
|
| $ | — |
|
| $ | 339,545 |
|
Intersegment revenues from fuel sales |
|
| 78,466 |
|
|
| — |
|
|
| (78,466 | ) |
|
| — |
|
Revenues from food and merchandise sales |
|
| — |
|
|
| 36,912 |
|
|
| — |
|
|
| 36,912 |
|
Rent income |
|
| 17,663 |
|
|
| 2,761 |
|
|
| — |
|
|
| 20,424 |
|
Other revenue |
|
| 300 |
|
|
| 1,221 |
|
|
| — |
|
|
| 1,521 |
|
Total revenues |
| $ | 315,766 |
|
| $ | 161,102 |
|
| $ | (78,466 | ) |
| $ | 398,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
| $ | 31,219 |
|
| $ | 331 |
|
| $ | (25,221 | ) |
| $ | 6,329 |
|
|
|
|
|
|
|
|
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Six Months Ended June 30, 2021 |
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Revenues from fuel sales to external customers |
| $ | 928,592 |
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| $ | 457,612 |
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| $ | — |
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| $ | 1,386,204 |
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Intersegment revenues from fuel sales |
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| 343,330 |
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| — |
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| (343,330 | ) |
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| — |
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Revenues from food and merchandise sales |
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| — |
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| 83,047 |
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|
| — |
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|
| 83,047 |
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Rent income |
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| 35,909 |
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|
| 5,425 |
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|
| — |
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|
| 41,334 |
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Other revenue |
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| 1,863 |
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|
| 4,170 |
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|
| — |
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|
| 6,033 |
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Total revenues |
| $ | 1,309,694 |
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| $ | 550,254 |
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| $ | (343,330 | ) |
| $ | 1,516,618 |
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Operating income (loss) |
| $ | 58,149 |
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| $ | 1,246 |
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| $ | (52,097 | ) |
| $ | 7,298 |
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Six Months Ended June 30, 2020 |
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Revenues from fuel sales to external customers |
| $ | 521,460 |
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| $ | 185,977 |
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| $ | — |
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| $ | 707,437 |
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Intersegment revenues from fuel sales |
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| 126,372 |
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| — |
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| (126,372 | ) |
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| — |
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Revenues from food and merchandise sales (a) |
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| — |
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| 36,912 |
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| — |
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| 36,912 |
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Rent income |
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| 38,131 |
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|
| 4,981 |
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|
| — |
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| 43,112 |
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Other revenue (a) |
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| 1,415 |
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| 1,221 |
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|
| — |
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| 2,636 |
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Total revenues |
| $ | 687,378 |
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| $ | 229,091 |
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| $ | (126,372 | ) |
| $ | 790,097 |
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Income from CST Fuel Supply equity interests |
| $ | 3,202 |
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| $ | — |
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| $ | — |
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| $ | 3,202 |
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Operating income |
| $ | 60,484 |
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| $ | 726 |
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| $ | 22,551 |
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| $ | 83,761 |
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From the date of conversion of the 46 company operated sites to dealer operated sites in the third quarter of 2019 through April 14, 2020, we did 0t have any company operated sites.
Receivables relating to the revenue streams above are as follows (in thousands):
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| June 30, |
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| December 31, |
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| March 31, |
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| December 31, |
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| 2021 |
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| 2020 |
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| 2022 |
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| 2021 |
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Receivables from fuel and merchandise sales |
| $ | 30,183 |
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| $ | 23,800 |
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| $ | 32,716 |
| $ | 27,932 |
| |
Receivables for rent and other lease-related charges |
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| 6,001 |
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| 5,650 |
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| 2,627 |
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| 6,548 |
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Total accounts receivable |
| $ | 36,184 |
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| $ | 29,450 |
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| $ | 35,343 |
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| $ | 34,480 |
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16
15
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The balance of unamortized costs incurred to obtain certain contracts with customers was $9.8$11.2 million and $8.3$11.0 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Amortization of such costs is recorded against operating revenues and amounted to $0.4$0.4 million and $0.3$0.3 million for the three months ended June 30,March 31, 2022 and 2021, and 2020 and $0.7 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively.
Receivables from rent and other lease-related charges are generally collected at the beginning of the month.
Note 16.17. SUPPLEMENTAL CASH FLOW INFORMATION
In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in operating assets and liabilities as follows (in thousands):
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| Six Months Ended June 30, |
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| 2021 |
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| 2020 |
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| Three Months Ended March 31, |
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Decrease (increase): |
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| 2022 |
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| 2021 |
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(Increase) decrease: |
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Accounts receivable |
| $ | (6,741 | ) |
| $ | 178 |
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| $ | (1,177 | ) |
| $ | (2,512 | ) |
Accounts receivable from related parties |
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| (216 | ) |
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| 977 |
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| 198 |
| (4 | ) | |||
Inventories |
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| (1,121 | ) |
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| 1,725 |
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| (6,314 | ) |
| (1,104 | ) | ||
Other current assets |
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| (2,682 | ) |
|
| (3,204 | ) |
| (1,854 | ) |
| (1,359 | ) | ||
Other assets |
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| (1,379 | ) |
|
| (1,257 | ) |
| (131 | ) |
| (892 | ) | ||
Increase (decrease): |
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| ||
Accounts payable (a) |
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| 6,940 |
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|
| 10,473 |
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Accounts payable |
| 12,645 |
| 3,063 |
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Accounts payable to related parties |
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| 939 |
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| 4,158 |
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| 492 |
| 529 |
| |||
Motor fuel and sales taxes payable (b) |
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| 2,585 |
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| 13,104 |
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Motor fuel and sales taxes payable |
| (1,345 | ) |
| 859 |
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Accrued expenses and other current liabilities |
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| 1,541 |
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|
| 2,048 |
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| (388 | ) |
| 733 |
| ||
Other long-term liabilities |
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| 2,275 |
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|
| (1,071 | ) |
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| 1,284 |
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|
| 3,574 |
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Changes in operating assets and liabilities, net of acquisitions |
| $ | 2,141 |
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| $ | 27,131 |
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| $ | 3,410 |
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| $ | 2,887 |
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The above changes in operating assets and liabilities may differ from changes between amounts reflected in the applicable balance sheets for the respective periods due to acquisitions.
Supplemental disclosure of cash flow information (in thousands):
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| Three Months Ended March 31, |
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| 2022 |
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| 2021 |
| ||
Cash paid for interest |
| $ | 5,892 |
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| $ | 2,996 |
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Refunds received, net of cash paid for income taxes |
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| (2 | ) |
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| (14 | ) |
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| Six Months Ended June 30, |
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| 2021 |
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| 2020 |
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Cash paid for interest |
| $ | 6,709 |
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| $ | 9,533 |
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Cash paid for income taxes, net of refunds received |
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| 1,426 |
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| 87 |
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Supplemental schedule of non-cash investing and financing activities (in thousands):
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| Six Months Ended June 30, |
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| 2021 |
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| 2020 |
| ||
Accrued capital expenditures |
| $ | 996 |
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| $ | 296 |
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Lease liabilities arising from obtaining right-of-use assets |
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| 9,156 |
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| 57,452 |
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Net assets acquired in connection with the asset exchange tranches with Circle K |
|
| — |
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|
| (55,552 | ) |
Net assets acquired in connection with the CST Fuel Supply Exchange with Circle K |
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| — |
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| (54,920 | ) |
Net assets acquired in connection with the acquisition of retail and wholesale assets |
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| — |
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|
| (12,335 | ) |
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| Three Months Ended March 31, |
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| 2022 |
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| 2021 |
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Accrued capital expenditures |
| $ | 2,664 |
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| $ | 1,062 |
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Lease liabilities arising from obtaining right-of-use assets |
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| 2,758 |
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|
| 9,156 |
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17
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, credit ratings, distribution growth, potential growth opportunities, potential operating performance improvements, potential improvements in return on capital employed, the effects of competition and the effects of future legislation or regulations. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “guidance,” “outlook,” “effort,” “target” and similar expressions. Such statements are based on our current plans and expectations and involve risks and uncertainties that could potentially affect actual results. These forward-looking statements include, among other things, statements regarding:
• 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; • expectations regarding environmental, tax and other regulatory initiatives; • the effect of general economic and other conditions on our business; and • the anticipated results from the assets recently acquired from 7-Eleven.
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In general, we based the forward-looking statements included in this report on our current expectations, estimates and projections about our company and the industry in which we operate. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties we cannot predict. We anticipate that subsequent events and market developments will cause our estimates to change. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. Any differences could result from a variety of factors, including the following:
• the Topper Group’s business strategy and operations and the 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 or a reduction in demand for motor fuels, including as a result of the COVID-19 Pandemic; • 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 existing or future indebtedness and the related interest expense and our ability to comply with debt covenants; • 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; • changes in energy policy; 17 • technological advances; • the impact of worldwide economic and political conditions; • 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, immigration and international trade.
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You should consider the risks and uncertainties described above and elsewhere in this report as well as those set forth in the section entitled “Risk Factors” in our Form 10-K in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that anticipated results or events reflected in the forward-looking statements will be achieved or will occur. The forward-looking statements included in this report are made as of the date of this report. We undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events after the date of this report, except as required by law.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this report, and the MD&A section and the consolidated financial statements and accompanying notes to those financial statements in our Form 10-K. Our Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations.
MD&A is organized as follows:
• Recent Developments—This section describes significant recent developments. • 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 months ended March 31, 2022 and 2021 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. 18 |
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Recent 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.
On April 28, 2021, Buyer entered intoWe funded these transactions primarily through the Asset Purchase Agreement with 7-Eleven, pursuant to which Buyer agreed to purchase certain assets relatedJKM Credit Facility, undrawn capacity under our CAPL Credit Facility and cash on hand.
See Note 2 to the ownershipfinancial statements for additional information regarding this acquisition.
Issuance of Preferred Membership Interests
On March 29, 2022, Holdings issued and operationssold 12,500 newly created Series A Preferred Interests to each of 106 company operated sites (90 fee; 16 leased) located in (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 Mid-AtlanticJBR Trust" and Northeast regionstogether 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 the U.S. (the “Properties”)$1,000 per Series A Preferred Interest, for an aggregate purchase price of $263.0$25 million subject to adjustment in accordance withcash (the “Preferred Issuance”), in reliance upon an exemption from the termsregistration requirements provided by Section 4(a)(2) of the Asset Purchase Agreement.Securities Act of 1933, as amended. The assets are being soldPreferred Issuance was consummated pursuant to an Investment Agreement, entered into as of March 29, 2022 (the “Investment Agreement”), by 7-Eleven as part of a divestiture process in connection with its previously announced acquisitionand among Holdings and each Investor. Following the Preferred Issuance, the Partnership indirectly retains 100% of the Speedway business from MPC.
The assets being purchased by Buyer include real propertycommon interests of Holdings, and leasehold rights to the Properties, and all inventory and other assets located at the Properties, other than specific excluded assets, such as rights to intellectual property or rights with respect to “7-Eleven” or “Speedway” branding. The vast majorityHoldings remains a consolidated subsidiary of the sites being purchased have been operating underPartnership.
In light of the Speedway brand,relationships between the Investors and all sites are being rebranded inthe 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 closing of such site pursuant to the Asset Purchase Agreement. Buyer is also assuming certain specified liabilities associated with the assets.
The Asset Purchase Agreement contains customary representations, warranties, agreements and obligationsPreferred Issuance, on March 29, 2022, LGP Operations LLC, a wholly owned subsidiary of the parties, including covenants regarding the conduct of the business at the Properties prior to the applicable closing of such Property.
Buyer is closing the acquisition of the Properties on a rolling basis of generally ten sites per week. In late June 2021, Buyer consummated the initial closing under the Asset Purchase Agreement, which consisted of two Properties for a purchase price of $4.2 million.
AcquisitionsPartnership, each Investor and Related Transactions occurring Subsequent to June 30, 2021
Through August 5, 2021, Buyer consummated the acquisition of 32 Properties for an aggregate purchase price of $106.2 million. We are funding these transactions primarily through a new credit facility further described below as well as undrawn capacity under our existing revolving credit facility and cash on hand. We anticipate that we will complete the acquisition early in the fourth quarter of 2021.
JKM Credit Facility
On July 16, 2021, CAPL JKM Partners LLC (“Borrower”), an indirect wholly-owned subsidiary of CrossAmerica, entered into a Credit Agreement, as amended on July 29, 2021 (the “JKM Credit Facility”) among Borrower, CAPL JKM Holdings LLC, an indirect wholly-owned subsidiary of CrossAmerica and the sole member of Borrower, and Manufacturers and Traders Trust Company, as administrative agent, swingline lender and issuing bank.
The JKM Credit Facility provides for a $200 million senior secured credit facility, consisting of a $185 million delayed draw term loan facility (the “Term Loan Facility”) and a $15 million revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility permits up to $7.5 million of swingline borrowings and $5.0 million in letters of credit. The interest rate applicable to loans outstanding under the JKM Credit Facility is equal to, at Borrower’s option, either (i) a base rate plus a margin (which will be determined based on Borrower’s consolidated leverage ratio) ranging from 0.50% to 1.50% per annum or (ii) LIBOR plus a margin (which will also be determined based on Borrower’s consolidated leverage ratio) ranging from 1.50% to 2.50% per annum. Commencing on the earliest of (a) the date on which the entire amount of the Term Loan Facility has been drawn, (b) the date on which the Term Loan Facility has been terminated or reduced to zero pursuant to the JKM Credit Facility, and (c) April 16, 2022, the Term Loan Facility will amortize in equal quarterly installments equal to 1.50% of the unpaid principal amount of the Term Loan Facility, with the balance payable on the maturity date of the Term Loan Facility. Letters of credit are subject to a 0.125% fronting fee and other customary administrative charges. Standby letters of credit will accrue a fee at a rate based on the applicable margin of LIBOR loans. In addition, beginning in October 2021, a commitment fee will be charged based on the unused portion of the JKM Credit Facility at a rate ranging from 0.25% to 0.375% per annum depending on Borrower’s consolidated leverage ratio. The JKM Credit Facility will mature on July 16, 2026.
The obligations under the JKM Credit Facility are guaranteed by Holdings and its subsidiaries (other than Borrower) and secured by a lien on substantially all of the assets of Holdings and its subsidiaries (including Borrower). The obligations under the JKM Credit Facility are nonrecourse to CrossAmerica and its subsidiaries other than Holdings, Borrower 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. The JKM Credit Facility also contains financial covenants requiring Borrower to comply with, as of the last day of each fiscal quarter of Borrower commencing with Borrower’s fiscal quarter ending December 31, 2021, (i) a maximum consolidated leverage ratio of 6.25 to 1.00, with step-downs to 6.00 to 1.00, 5.75 to 1.00, 5.50 to 1.00 and 5.25 to 1:00 on March 31, 2022, March 31, 2023, March 31, 2024 and March 31, 2025, respectively, and (ii) a minimum fixed charge coverage ratio of 1.10 to 1.00.
If an event of default under the JKM Credit Facility occurs and is continuing, the commitments thereunder may be terminated and the principal amount outstanding thereunder, together with all accrued unpaid interest and other amounts owed thereunder, may be declared immediately due and payable.
As of August 5, 2021, we had $64.4 million outstanding under our Term Loan Facility.
Amendment to CAPL Credit Facility
On July 28, 2021, the Partnership entered into an amendmentamended 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 “Amendment”“preferred return”). Prior to its Credit Agreement, dated asOctober 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 Aprilan 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, 2019 (as previously amended by2024, at the First Amendment to Credit Agreement, dated asoption of November 19, 2019, the “CAPL Credit Facility”), 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 theretoHoldings, and Citizens Bank, N.A., as administrative agent. The Amendment, among other things, (i) amended certain provisions relating to unrestricted subsidiaries, (ii) increased the maximum level for the consolidated leverage ratio financial covenant to 6.00 to 1.00 for the fiscal quarters ending September 30, 2021 and December 31, 2021, 5.75 to 1.00 for the fiscal quarter ending(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, 5.50the trading day immediately prior to 1.00 for the fiscal quarter ending June 30, 2022, and 5.25date of the Preferred Issuance.
The net proceeds received by Holdings in its sale of the Series A Preferred Interests were contributed to 1.00 forCAPL JKM Partners, which in turn used such proceeds to prepay a portion of the fiscal quarter ending September 30, 2022, after which the maximum level generally reverts to 4.75 to 1.00 unless in a specified acquisition period or a qualified note offering has occurred, and (iii) modified the applicable margin for borrowingsoutstanding indebtedness under the Term Loan Facility. As a result of this prepayment, CAPL Credit Facility (as amended by the Amendment), such that borrowings will bear interest, at the Partnership’s option, at either LIBOR plusJKM Partners does not need to make a margin ranging from 1.50% to 3.00% per annum or a base rate plus a margin ranging from 0.50% to 2.00% per annum (in each case dependingprincipal payment on the Partnership’s consolidated leverage ratio).Term Loan Facility until April 1, 2023.
See Note 13 to the financial statements for additional information on the preferred membership interests.
19
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 have 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 first half ofcontinued to recover in 2021 and 2022, we cannot predict the scope and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows.business. Sustained decreases in fuel volume or erosion of margin could have a material adverse effect on our results of operations, cash flow, financial position and ultimately our ability to pay distributions.
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 70%62% 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, including intersegment sales to the Retailretail 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 cost of wholesale motor fuel declining at a faster rate as compared to the rate that retail motor fuel prices decline. Conversely, our DTW motor fuel gross profit generally declines when the cost of wholesale motor fuel increases at a faster rate as compared to the rate that retail motor fuel prices increase.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 to 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 over short periods of time.
Changes in our average motor fuel selling price per gallon and gross margin are directly related to the changes in crude oil and wholesale motor fuel prices. Variations in our reported revenues and cost of sales are, therefore, primarily related to the price of crude oil and wholesale motor fuel prices and generally not as a result of changes in motor fuel sales volumes, unless otherwise indicated and discussed below.
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. Since the Wholesale segment supplies all fuel requirements to the Retail segment, a portion of that volatility is absorbed by the Wholesale segment.
As previously reported, we converted 46 company operated sites to dealer operated sites in the third quarter of 2019. As a result of this transition, we did not have any company operated sites for the period from September 30, 2019 through closing on the retail and wholesale acquisition on April 14, 2020, since which we have again been operating company operated sites.
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 of our operating expenses and cost of goods sold. Operating expenses include labor costs, 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 negatively impact our operating expenses. Although we have historically been able to pass on increased costs through price increases, there can be no assurance that we will be able to do so in the future.
20
Acquisition and Financing Activity
Our results of operations and financial condition are also impacted by our acquisition and financing activities as summarized below.
• From late June 2021 through December 31, 2021, we closed on the purchase of 103 sites of our 106-site acquisition from 7-Eleven, and in July 2021, we entered into a new credit agreement and amended our existing credit facility as further described in Notes 3 and 12 to the financial statements. In February 2022, we closed on the final three properties. • In March 2022, Holdings issued $25 million in preferred membership interests as further described in Note 13 to the financial statements.
|
|
|
|
|
|
|
|
|
|
Results of Operations
Consolidated Income Statement Analysis
Below is an analysis of our consolidated statements of operations and provides the primary reasons for significant increases and decreases in the various income statement line items from period to period. Our consolidated statements of operations are as follows (in thousands):
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||
Operating revenues |
| $ | 859,334 |
|
| $ | 398,402 |
|
| $ | 1,516,618 |
|
| $ | 790,097 |
|
| $ | 1,093,211 |
| $ | 657,284 |
| |
Costs of sales |
|
| 794,240 |
|
|
| 340,754 |
|
|
| 1,396,656 |
|
|
| 696,720 |
|
|
| 1,014,381 |
|
|
| 602,416 |
|
Gross profit |
|
| 65,094 |
|
|
| 57,648 |
|
|
| 119,962 |
|
|
| 93,377 |
|
| 78,830 |
| 54,868 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Income from CST Fuel Supply equity interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,202 |
| ||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Operating expenses |
|
| 31,070 |
|
|
| 25,097 |
|
|
| 60,473 |
|
|
| 35,820 |
|
| 42,109 |
| 29,403 |
| |||
General and administrative expenses |
|
| 6,876 |
|
|
| 5,597 |
|
|
| 14,526 |
|
|
| 10,077 |
|
| 6,483 |
| 7,650 |
| |||
Depreciation, amortization and accretion expense |
|
| 19,583 |
|
|
| 16,050 |
|
|
| 37,614 |
|
|
| 33,277 |
|
|
| 20,275 |
|
|
| 18,031 |
|
Total operating expenses |
|
| 57,529 |
|
|
| 46,744 |
|
|
| 112,613 |
|
|
| 79,174 |
|
| 68,867 |
| 55,084 |
| |||
Gain (loss) on dispositions and lease terminations, net |
|
| 597 |
|
|
| (4,575 | ) |
|
| (51 | ) |
|
| 66,356 |
| ||||||||
Operating income |
|
| 8,162 |
|
|
| 6,329 |
|
|
| 7,298 |
|
|
| 83,761 |
| ||||||||
Loss on dispositions and lease terminations, net |
|
| (244 | ) |
|
| (648 | ) | ||||||||||||||||
Operating income (loss) |
| 9,719 |
| (864 | ) | |||||||||||||||||||
Other income, net |
|
| 204 |
|
|
| 78 |
|
|
| 292 |
|
|
| 215 |
|
| 130 |
| 88 |
| |||
Interest expense |
|
| (3,870 | ) |
|
| (4,121 | ) |
|
| (7,367 | ) |
|
| (9,661 | ) |
|
| (6,661 | ) |
|
| (3,497 | ) |
Income before income taxes |
|
| 4,496 |
|
|
| 2,286 |
|
|
| 223 |
|
|
| 74,315 |
| ||||||||
Income (loss) before income taxes |
| 3,188 |
| (4,273 | ) | |||||||||||||||||||
Income tax benefit |
|
| (293 | ) |
|
| (2,944 | ) |
|
| (599 | ) |
|
| (2,976 | ) |
|
| (1,859 | ) |
|
| (306 | ) |
Net income |
|
| 4,789 |
|
|
| 5,230 |
|
|
| 822 |
|
|
| 77,291 |
| ||||||||
IDR distributions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (133 | ) | ||||||||
Net income available to limited partners |
| $ | 4,789 |
|
| $ | 5,230 |
|
| $ | 822 |
|
| $ | 77,158 |
| ||||||||
Net income (loss) available to limited partners |
| $ | 5,047 |
|
| $ | (3,967 | ) |
Three Months Ended June 30,2021March 31, 2022 Compared to Three Months Ended June 30,March 31, 20212020
Consolidated Results
Operating revenues increased $461$436 million (116%(66%) and gross profit increased $7.4$24 million (13%(44%).
Operating revenues
Significant items impacting these results prior to the elimination of intercompany revenues were:
• A $385 million (68%) increase in our wholesale segment revenues primarily attributable to a 73% increase in the average daily spot price of WTI crude oil to $95.18 per barrel for the first quarter of 2022, compared to $58.09 per barrel for the first quarter of 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.” In addition, volume increased 10% primarily as a result of volume generated by the acquisition of assets from 7-Eleven. • A $251 million (105%) increase in our retail segment revenues primarily attributable to a 44% increase in the average retail fuel price from the first quarter of 2021 to the first quarter of 2022 primarily due to the increase in wholesale motor fuel prices as noted above. Volume also increased 48% for the first quarter of 2022 compared to the first quarter of 2021 as a result of the acquisition of assets from 7-Eleven. Lastly, merchandise revenues increased $24.5 million (65%) driven by the acquisition of assets from 7-Eleven. 21 |
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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 $120$200 million (153%(138%), primarily attributable to the increase in wholesale fuel prices and the incremental intersegment revenues generated by the company operated and commission sites acquired in the April 2020 acquisition of retail and wholesale assets discussed above.from 7-Eleven.
Cost of sales
Cost of sales increased $453$412 million (133%(68%), which was a result of the increase in wholesale motor fuel prices the asset exchanges with Circle K,and the acquisition of retail and wholesale assets and the continuing recovery from the COVID-19 Pandemic7-Eleven discussed above.
Gross profit
Gross profit increased $7.4$24 million (13%(44%), which was primarily driven by increases in motor fuel, merchandise and other gross profit due to the acquisition of retail and wholesale assets from 7-Eleven along with incremental fuelrealizing a higher margin from higher volume driven by the asset exchanges with Circle K and the continuing recovery from the COVID-19 Pandemic, partially offset by lower DTW margins due to the significant drop in crude in 2020 as opposed to the increase in crude during 2021.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 increased $1.3decreased $1.2 million (23%(15%) primarily due to a $1.5 million decrease in acquisition-related costs driven by a $1.3 million increasereduction in acquisition-related costs as a result of higher legal fees incurred in connection with the acquisition of assets from 7-Eleven $0.5 million increase in management fees relatedas compared to the increase in headcount and overall higher general and administrative expenses stemming from the April 2020 acquisitionfirst quarter of retail and wholesale assets,2021, partially offset by a $0.5$0.4 million decreaseincrease in credit loss expense.equity-based compensation expense as a result of more grants being outstanding during the first quarter of 2022 as compared to the same period of the prior year.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $3.5$2.2 million (22%(12%) 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 $2.6$1.6 million increasedecrease 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. In addition, we incurred incremental depreciation, amortization and accretion expense from the property and equipment and intangible assets acquired in the asset exchanges with Circle K and the acquisition of retail and wholesale assets.
Gain (loss) on dispositions and lease terminations, net
During the three months ended June 30, 2021,March 31, 2022, we recorded a $1.1$0.5 million loss on lease terminations and asset disposals, partially offset by a $0.3 million gain related to sites sold in connection with our ongoing real estate rationalization effort, partially offset by net losses oneffort.
During the three months ended March 31, 2021, we recorded a $0.7 million loss related to lease terminations and asset disposals.
During the three months ended June 30, 2020, we recorded a $10.9 million loss on lease terminations, including a write-off of deferred rent income, in connection with the April 2020 acquisition of retail and wholesale assets. We also recorded a gain of $6.1 million related to the properties sold in the asset exchanges with Circle K.
Interest expense
Interest expense decreased $0.3increased $3.2 million (6%(90%), primarily driven by $1.2 million in interest expense incurred on the JKM Credit Facility along with a reduction$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 borrowings under ourthe CAPL Credit Facility due both to a decreasean increase in the average interestLIBOR rate and the higher outstanding balance driven by the borrowings to fund a portion of the purchase price of the acquisition of assets from 2.6% to 2.3%.7-Eleven.
Income tax expense/benefit
We recorded an income tax benefitsbenefit of $0.3$1.9 million and $2.9$0.3 million for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively. The benefits were primarilyrespectively, driven by losses incurred by our taxable subsidiaries.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 202022
Consolidated Results
Operating revenues increased $727 million (92%) and gross profit increased $27 million (28%).
Operating revenuesSegment Results
Significant items impacting these results prior to the elimination of intercompany revenues were:
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|
|
|
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 $217 million (172%) primarily attributable to the incremental intersegment revenues generated by the company operated and commission sites acquired in the April 2020 acquisition of retail and wholesale assets and the March 2020 CST Fuel Supply Exchange as well as higher volume from the continuing recovery from the COVID-19 Pandemic.
Cost of sales
Cost of sales increased $700 million (100%) as a result of the increase in wholesale motor fuel prices and the impact of the increase in sites acquired in the asset exchanges with Circle K, the CST Fuel Supply Exchange, the acquisition of retail and wholesale assets as well as the continuing recovery from the COVID-19 Pandemic discussed above.
Gross profit
The $27 million (28%) increase in gross profit was primarily driven by increases in motor fuel and merchandise gross profit due to 1) the CST Fuel Supply Exchange, which primarily resulted in an increase in fuel margin and a decrease in income from CST Fuel Supply equity interests; 2) the acquisition of retail and wholesale assets, which primarily resulted in an increase in fuel margin and merchandise margin and other revenues partially offset by a decrease in lease margin; 3) an increase in volume driven by the continuing recovery from the COVID-19 Pandemic; partially offset by 4) lower DTW margins as a result of the significant drop in crude during the first half of 2020 as compared to the increase in crude during the first half of 2021. See “Results of Operations—Segment Results” for additional gross profit analyses.
Income from CST Fuel Supply equity interests and Operating expenses
See “Results of Operations—Segment Results” for analyses.
General and administrative expenses
General and administrative expenses increased $4.4 million (44%) primarily driven by a $2.2 million increase in acquisition-related costs as a result of higher legal fees incurred in connection with the acquisition of assets from 7-Eleven, a $1.3 million increase in management fees related to the increase in headcount and overall higher general and administrative expenses stemming from the April 2020 acquisition of retail and wholesale assets, partially offset by a $0.6 decrease in credit loss expense.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $4.3 million (13%) primarily from the property and equipment and intangible assets acquired in the asset exchanges with Circle K, the CST Fuel Supply Exchange and the acquisition of retail and wholesale assets. We recorded $5.2 million in impairment charges during the six months ended June 30, 2021 compared with $5.5 million in impairment charges during the same period of 2020, primarily 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, 2021, we recorded a $1.1 gain related to sites sold in connection with our ongoing real estate rationalization effort, partially offset by net losses on lease terminations and asset disposals.
During the six months ended June 30, 2020, we recorded a $67.6 million gain on the sale of our 17.5% investment in CST Fuel Supply. We also recorded $7.9 million in gains related to the properties sold in the asset exchanges with Circle K and $1.8 million related to the sale of 13 sites in connection with our ongoing real estate rationalization effort. Partially offsetting these gains, we recorded a $10.9 million loss on lease terminations, including a write-off of deferred rent income, in connection with the April 2020 acquisition of retail and wholesale assets.
Interest expense
Interest expense decreased $2.3 million (24%) primarily driven by a reduction in interest expense on borrowings under our CAPL Credit Facility due to a decrease in the average interest rate from 3.2% to 2.1%.
Income tax benefit
We recorded income tax benefits of $0.6 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively. The benefits were primarily driven by losses incurred by our taxable 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.
Wholesale
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 March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Gross profit: |
|
|
|
|
|
| ||
Motor fuel–third party |
| $ | 16,185 |
|
| $ | 15,523 |
|
Motor fuel–intersegment and related party |
|
| 16,619 |
|
|
| 5,729 |
|
Motor fuel gross profit |
|
| 32,804 |
|
|
| 21,252 |
|
Rent gross profit |
|
| 12,339 |
|
|
| 12,493 |
|
Other revenues |
|
| 1,786 |
|
|
| 1,134 |
|
Total gross profit |
|
| 46,929 |
|
|
| 34,879 |
|
Operating expenses |
|
| (10,072 | ) |
|
| (9,974 | ) |
Operating income |
| $ | 36,857 |
|
| $ | 24,905 |
|
Motor fuel distribution sites (end of period): (a) |
|
|
|
|
|
| ||
Motor fuel–third party |
|
|
|
|
|
| ||
Independent dealers (b) |
|
| 656 |
|
|
| 683 |
|
Lessee dealers (c) |
|
| 642 |
|
|
| 648 |
|
Total motor fuel distribution–third party sites |
|
| 1,298 |
|
|
| 1,331 |
|
Motor fuel–intersegment and related party |
|
|
|
|
|
| ||
Commission agents (Retail segment) (c) |
|
| 201 |
|
|
| 205 |
|
Company operated retail sites (Retail segment) (d) |
|
| 255 |
|
|
| 151 |
|
Total motor fuel distribution–intersegment and |
|
| 456 |
|
|
| 356 |
|
Motor fuel distribution sites (average during the period): |
|
|
|
|
|
| ||
Motor fuel-third party distribution |
|
| 1,302 |
|
|
| 1,338 |
|
Motor fuel-intersegment and related party distribution |
|
| 453 |
|
|
| 356 |
|
Total motor fuel distribution sites |
|
| 1,755 |
|
|
| 1,694 |
|
Volume of gallons distributed |
|
|
|
|
|
| ||
Third party |
|
| 203,915 |
|
|
| 213,708 |
|
Intersegment and related party |
|
| 116,329 |
|
|
| 78,072 |
|
Total volume of gallons distributed |
|
| 320,244 |
|
|
| 291,780 |
|
|
|
|
|
|
|
| ||
Wholesale margin per gallon |
| $ | 0.102 |
|
| $ | 0.073 |
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel–third party |
| $ | 18,529 |
|
| $ | 12,177 |
|
| $ | 34,052 |
|
| $ | 25,217 |
|
Motor fuel–intersegment and related party |
|
| 11,961 |
|
|
| 15,989 |
|
|
| 17,690 |
|
|
| 22,842 |
|
Motor fuel gross profit |
|
| 30,490 |
|
|
| 28,166 |
|
|
| 51,742 |
|
|
| 48,059 |
|
Rent gross profit |
|
| 12,973 |
|
|
| 12,262 |
|
|
| 25,466 |
|
|
| 26,391 |
|
Other revenues |
|
| 729 |
|
|
| 300 |
|
|
| 1,863 |
|
|
| 1,415 |
|
Total gross profit |
|
| 44,192 |
|
|
| 40,728 |
|
|
| 79,071 |
|
|
| 75,865 |
|
Income from CST Fuel Supply equity interests (a) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,202 |
|
Operating expenses |
|
| (10,948 | ) |
|
| (9,509 | ) |
|
| (20,922 | ) |
|
| (18,583 | ) |
Operating income |
| $ | 33,244 |
|
| $ | 31,219 |
|
| $ | 58,149 |
|
| $ | 60,484 |
|
Motor fuel distribution sites (end of period): (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel–third party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent dealers (c) |
|
| 675 |
|
|
| 712 |
|
|
| 675 |
|
|
| 712 |
|
Lessee dealers (d) |
|
| 651 |
|
|
| 682 |
|
|
| 651 |
|
|
| 682 |
|
Total motor fuel distribution–third party sites |
|
| 1,326 |
|
|
| 1,394 |
|
|
| 1,326 |
|
|
| 1,394 |
|
Motor fuel–intersegment and related party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission agents (Retail segment) (e) |
|
| 202 |
|
|
| 212 |
|
|
| 202 |
|
|
| 212 |
|
Company operated retail sites (Retail segment) |
|
| 152 |
|
|
| 150 |
|
|
| 152 |
|
|
| 150 |
|
Total motor fuel distribution–intersegment and related party sites |
|
| 354 |
|
|
| 362 |
|
|
| 354 |
|
|
| 362 |
|
Motor fuel distribution sites (average during the period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel-third party distribution |
|
| 1,328 |
|
|
| 1,379 |
|
|
| 1,333 |
|
|
| 1,227 |
|
Motor fuel-intersegment and related party distribution |
|
| 353 |
|
|
| 346 |
|
|
| 355 |
|
|
| 289 |
|
Total motor fuel distribution sites |
|
| 1,681 |
|
|
| 1,725 |
|
|
| 1,688 |
|
|
| 1,516 |
|
Volume of gallons distributed (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party |
|
| 242,392 |
|
|
| 192,927 |
|
|
| 456,100 |
|
|
| 370,424 |
|
Intersegment and related party |
|
| 89,233 |
|
|
| 67,319 |
|
|
| 167,305 |
|
|
| 110,467 |
|
Total volume of gallons distributed |
|
| 331,625 |
|
|
| 260,246 |
|
|
| 623,405 |
|
|
| 480,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale margin per gallon |
| $ | 0.092 |
|
| $ | 0.108 |
|
| $ | 0.083 |
|
| $ | 0.100 |
|
23
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,March 31, 20212022 Compared to Three Months Ended June 30,March 31, 20202021
Gross profit increased $3.5$12.1 million (9%(35%) and operating income increased $2.0$12.0 million (6%(48%). TheThese results were drivenimpacted by:
Motor fuel gross profit
The $2.3$11.6 million (8%(54%) increase in motor fuel gross profit was primarily driven by a 27%10% increase in volume as a result of the asset exchanges with Circle K and the acquisition of retail and wholesale assets from 7-Eleven. Our DTW margins were also higher for the first quarter of 2022 as wellcompared to the first quarter of 2021 due to greater volatility in the price of crude oil in the first quarter of 2022 as compared to the continuing recovery from the COVID-19 Pandemic.first quarter of 2021. In addition, we benefited from higher terms discounts as a result of higher crude prices. The average spot price of WTI crude oil increased 137%64% from $27.96$58.09 per barrel for the secondfirst quarter of 20202021 to $66.19$95.18 per barrel for the secondfirst quarter of 2021. However, DTW margins were lower due to the movements in wholesale fuel prices throughout the second quarter of 2021 as compared to the second quarter of 2020. During the second quarter of 2021, the daily spot price of WTI crude oil increased from $59 per barrel at the start of the quarter to $74 per barrel as of June 30, 2021, a 24% increase, which adversely impacted fuel margins for our variable priced gallons during the quarter. During the second quarter of 2020, we benefitted from the sharp reduction in wholesale fuel prices particularly at the beginning of the quarter. As such, DTW margins were negatively impacted for the second quarter of 2021 as compared to the second quarter of 2020.2022. 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 gross profit
Rent gross profit increased $0.7 million (6%) primarily as a result of the $0.5 million in rent concessions that impacted the second quarter of 2020.
Operating expenses
Operating expenses increased $1.4$0.1 million (15%(1%), primarily as a result of a $1.2 millionan increase in environmental costs relatedmanagement fees relating to remediation, compliance testing and monitoring.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Gross profit increased $3.2 million (4%) and operating income decreased $2.3 million (4%). The results were driven by:
Motor fuel gross profit
The $3.7 million (8%)an increase in motor fuel gross profit was primarily driven by a 30% increase in volume as a result of the asset exchanges with Circle K, the CST Fuel Supply Exchange, the acquisition of retail and wholesale assets and the continuing recovery from the COVID-19 Pandemic. In addition, we benefited from higher terms discounts as a result of higher crude prices. The average spot price of WTI crude oil increased 70% from $36.58 per barrel for the first half of 2020 to $62.21 per barrel for the first half of 2021. However, DTW margins were lower due to the movements in wholesale fuel prices throughout the first half of 2021 as compared to the first half of 2020. During the first half of 2021, the daily spot price of WTI crude oil increased from $48 per barrel at the start of the quarter to $74 per barrel as of June 30, 2021, a 52% increase, which adversely impacted fuel margins for our variable priced gallons during the period. During the first half of 2020, we benefitted from the reduction in wholesale fuel prices. As such, DTW margins were negatively impacted for the first half of 2021 as compared to the first half of 2020. 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 gross profit
Rent gross profit decreased $0.9 million (4%) primarily as a result of terminating leases in connection with the acquisition of retail and wholesale assets and $0.5 million in rent concessions during the second quarter of 2020,headcount, partially offset by the CST Fuel Supply Exchange.a decrease in maintenance and environmental costs.
Income from CST Fuel Supply equity interestsRetail
Income from CST Fuel Supply equity interests is no longer generated as a result of the March 2020 CST Fuel Supply Exchange.
Operating expenses
Operating expenses increased $2.3 million (13%) primarily as a result of a $1.4 million increase in environmental costs related to remediation, costs of compliance testing and monitoring and a $1.0 million increase in insurance costs due to the increase in controlled sites as a result of the acquisitions.
Retail
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 March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Gross profit: |
|
|
|
|
|
| ||
Motor fuel |
| $ | 10,496 |
|
| $ | 5,433 |
|
Merchandise |
|
| 16,682 |
|
|
| 10,364 |
|
Rent |
|
| 2,447 |
|
|
| 2,066 |
|
Other revenue |
|
| 3,088 |
|
|
| 1,859 |
|
Total gross profit |
|
| 32,713 |
|
|
| 19,722 |
|
Operating expenses |
|
| (32,037 | ) |
|
| (19,429 | ) |
Operating income |
| $ | 676 |
|
| $ | 293 |
|
|
|
|
|
|
|
| ||
Retail sites (end of period): |
|
|
|
|
|
| ||
Commission agents (a) |
|
| 201 |
|
|
| 205 |
|
Company operated retail sites (b) |
|
| 255 |
|
|
| 151 |
|
Total system sites at the end of the period |
|
| 456 |
|
|
| 356 |
|
|
|
|
|
|
|
| ||
Total system operating statistics: |
|
|
|
|
|
| ||
Average retail fuel sites during the period |
|
| 454 |
|
|
| 356 |
|
Volume of gallons sold |
|
| 116,040 |
|
|
| 78,235 |
|
|
|
|
|
|
|
| ||
Commission agents statistics: |
|
|
|
|
|
| ||
Average retail fuel sites during the period |
|
| 200 |
|
|
| 205 |
|
|
|
|
|
|
|
| ||
Company operated retail site statistics: |
|
|
|
|
|
| ||
Average retail fuel sites during the period |
|
| 254 |
|
|
| 151 |
|
Merchandise gross profit percentage |
|
| 26.8 | % |
|
| 27.4 | % |
24
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel |
| $ | 4,937 |
|
| $ | 3,284 |
|
| $ | 10,370 |
|
| $ | 3,689 |
|
Merchandise |
|
| 11,969 |
|
|
| 9,384 |
|
|
| 22,333 |
|
|
| 9,384 |
|
Rent |
|
| 1,858 |
|
|
| 2,030 |
|
|
| 3,924 |
|
|
| 3,669 |
|
Other revenue |
|
| 2,311 |
|
|
| 1,221 |
|
|
| 4,170 |
|
|
| 1,221 |
|
Total gross profit |
|
| 21,075 |
|
|
| 15,919 |
|
|
| 40,797 |
|
|
| 17,963 |
|
Operating expenses |
|
| (20,122 | ) |
|
| (15,588 | ) |
|
| (39,551 | ) |
|
| (17,237 | ) |
Operating income |
| $ | 953 |
|
| $ | 331 |
|
| $ | 1,246 |
|
| $ | 726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sites (end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission agents (a) |
|
| 202 |
|
|
| 212 |
|
|
| 202 |
|
|
| 212 |
|
Company operated retail sites |
|
| 152 |
|
|
| 150 |
|
|
| 152 |
|
|
| 150 |
|
Total system sites at the end of the period |
|
| 354 |
|
|
| 362 |
|
|
| 354 |
|
|
| 362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total system operating statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average retail fuel sites during the period |
|
| 353 |
|
|
| 337 |
|
|
| 355 |
|
|
| 254 |
|
Motor fuel sales (gallons per site per day) |
|
| 2,793 |
|
|
| 2,057 |
|
|
| 2,616 |
|
|
| 1,993 |
|
Motor fuel gross profit per gallon, net of credit card fees and commissions |
| $ | 0.055 |
|
| $ | 0.052 |
|
| $ | 0.062 |
|
| $ | 0.040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission agents statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average retail fuel sites during the period |
|
| 203 |
|
|
| 210 |
|
|
| 204 |
|
|
| 190 |
|
Motor fuel gross profit per gallon, net of credit card fees and commissions |
| $ | 0.014 |
|
| $ | 0.016 |
|
| $ | 0.015 |
|
| $ | 0.015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operated retail site statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average retail fuel sites during the period |
|
| 150 |
|
|
| 128 |
|
|
| 151 |
|
|
| 64 |
|
Motor fuel gross profit per gallon, net of credit card fees |
| $ | 0.093 |
|
| $ | 0.096 |
|
| $ | 0.109 |
|
| $ | 0.096 |
|
Merchandise gross profit percentage, net of credit card fees |
|
| 26.5 | % |
|
| 25.4 | % |
|
| 26.9 | % |
|
| 25.4 | % |
|
|
Three Months Ended June 30,March 31, 20212022 Compared to Three Months Ended June 30,March 31, 20202021
Gross profit increased $5.2$13.0 million (32%(66%) and operating income increased $0.6$0.4 million (188%(131%). These results were impacted by:
Gross profit
|
|
|
|
Operating expenses
Operating expenses increased $4.5$12.6 million (29%(65%) primarily due to a $12.1 million increase driven by the increase in company operated sites as a result of the April 2020 acquisition of retail and wholesale assets.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Gross profit increased $22.8 million (127%) and operating income increased $0.5 million (72%). These results were driven by:acquired from 7-Eleven.
Gross profit
|
|
|
|
Operating expenses
Operating expenses increased $22.3 million (129%) primarily due to the increase in company operated and commission sites as a result of the April 2020 acquisition of retail and wholesale assets and the CST Fuel Supply Exchange.
Non-GAAP Financial Measures
We use the non-GAAP financial measures EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio. EBITDA represents net income available to us before deducting interest expense, income taxes and depreciation, amortization and accretion (which includes certain impairment charges). Adjusted EBITDA represents EBITDA as further adjusted to exclude equity-based employee and director compensation expense, gains or losses on dispositions and lease terminations, net and certain discrete acquisition related costs, such as legal and other professional fees, separation benefit costs and certain other discrete non-cash items arising from purchase accounting. Distributable Cash Flow represents Adjusted EBITDA less cash interest expense, sustaining capital expenditures and current income tax benefit or expense. The Distribution Coverage Ratio is computed by dividing Distributable Cash Flow by the weighted-average diluted common 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.
25
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 March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net income (loss) available to limited partners |
| $ | 5,047 |
|
| $ | (3,967 | ) |
Interest expense |
|
| 6,661 |
|
|
| 3,497 |
|
Income tax benefit |
|
| (1,859 | ) |
|
| (306 | ) |
Depreciation, amortization and accretion expense |
|
| 20,275 |
|
|
| 18,031 |
|
EBITDA |
|
| 30,124 |
|
|
| 17,255 |
|
Equity-based employee and director compensation expense |
|
| 732 |
|
|
| 368 |
|
Loss on dispositions and lease terminations, net |
|
| 244 |
|
|
| 648 |
|
Acquisition-related costs (a) |
|
| 868 |
|
|
| 2,394 |
|
Adjusted EBITDA |
|
| 31,968 |
|
|
| 20,665 |
|
Cash interest expense |
|
| (5,981 | ) |
|
| (3,236 | ) |
Sustaining capital expenditures (b) |
|
| (1,554 | ) |
|
| (1,392 | ) |
Current income tax expense |
|
| (185 | ) |
|
| (284 | ) |
Distributable Cash Flow |
| $ | 24,248 |
|
| $ | 15,753 |
|
Distributions paid |
|
| 19,896 |
|
|
| 19,881 |
|
Distribution Coverage Ratio (c) |
| 1.22x |
|
| 0.79x |
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income available to limited partners |
| $ | 4,789 |
|
| $ | 5,230 |
|
| $ | 822 |
|
| $ | 77,158 |
|
Interest expense |
|
| 3,870 |
|
|
| 4,121 |
|
|
| 7,367 |
|
|
| 9,661 |
|
Income tax benefit |
|
| (293 | ) |
|
| (2,944 | ) |
|
| (599 | ) |
|
| (2,976 | ) |
Depreciation, amortization and accretion expense |
|
| 19,583 |
|
|
| 16,050 |
|
|
| 37,614 |
|
|
| 33,277 |
|
EBITDA |
|
| 27,949 |
|
|
| 22,457 |
|
|
| 45,204 |
|
|
| 117,120 |
|
Equity-based employee and director compensation expense |
|
| 386 |
|
|
| 17 |
|
|
| 754 |
|
|
| 48 |
|
(Gain) loss on dispositions and lease terminations, net (a) |
|
| (597 | ) |
|
| 4,575 |
|
|
| 51 |
|
|
| (66,356 | ) |
Acquisition-related costs (b) |
|
| 1,967 |
|
|
| 672 |
|
|
| 4,361 |
|
|
| 2,193 |
|
Adjusted EBITDA |
|
| 29,705 |
|
|
| 27,721 |
|
|
| 50,370 |
|
|
| 53,005 |
|
Cash interest expense |
|
| (3,610 | ) |
|
| (3,861 | ) |
|
| (6,846 | ) |
|
| (9,140 | ) |
Sustaining capital expenditures (c) |
|
| (1,040 | ) |
|
| (407 | ) |
|
| (2,432 | ) |
|
| (1,047 | ) |
Current income tax (expense) benefit (d) |
|
| (50 | ) |
|
| 2,594 |
|
|
| (334 | ) |
|
| 3,668 |
|
Distributable Cash Flow |
| $ | 25,005 |
|
| $ | 26,047 |
|
| $ | 40,758 |
|
| $ | 46,486 |
|
Weighted-average diluted common units |
|
| 37,905 |
|
|
| 37,738 |
|
|
| 37,902 |
|
|
| 36,867 |
|
Distributions paid per limited partner unit (e) |
| $ | 0.5250 |
|
| $ | 0.5250 |
|
| $ | 1.0500 |
|
| $ | 1.0500 |
|
Distribution Coverage Ratio (f) |
| 1.26x |
|
| 1.31x |
|
| 1.02x |
|
| 1.20x |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Liquidity
Our principal liquidity requirements are to finance our operations, fund acquisitions, service our debt and pay distributions to our unitholders. We expect our ongoing sources of liquidity to include cash generated by operations, proceeds from sales of sites in connection with our operations andreal estate rationalization efforts, borrowings under the CAPL 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.
We believe that we will have sufficient cash flow from operations, borrowing capacity under the CAPL Credit Facility and our new JKM Credit Facility, entered into in connection with the acquisition of 106 sites from 7-Eleven and access to capital markets and alternate sources of funding to meet our financial commitments, debt service obligations, contingencies, anticipated capital expenditures and partnership distributions. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities and/or maintain or increase distributions to unitholders.
See “Recent Developments—COVID-19 Pandemic” for a discussion of the impacts and potential impacts on our liquidity from the COVID-19 Pandemic as well as actions we have taken or could take to mitigate its impact.
26
Cash Flows
The following table summarizes cash flow activity (in thousands):
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Net cash provided by operating activities |
| $ | 41,014 |
|
| $ | 61,643 |
|
| $ | 28,388 |
| $ | 17,668 |
| |
Net cash used in investing activities |
|
| (20,392 | ) |
|
| (6,580 | ) |
| (9,326 | ) |
| (9,643 | ) | ||
Net cash used in financing activities |
|
| (20,514 | ) |
|
| (54,658 | ) |
| (15,561 | ) |
| (7,584 | ) |
Operating Activities
Net cash provided by operating activities decreased $20.6increased $10.7 million for the sixthree months ended June 30, 2021March 31, 2022 compared to the same period in 2020,2021, primarily attributable to the changesincremental cash flow generated by the sites acquired from 7-Eleven and the strong DTW margins in working capital stemming primarily from the April 2020 acquisitionfirst quarter of retail and wholesale assets (particularly the related build of the accounts payable balance during the six months ended June 30, 2020) and timing (particularly the increase in motor fuel and sales taxes payable during the six months ended June 30, 2020).2022.
As is typical in our industry, our current liabilities exceed our current assets as a result of the longer settlement of real estate and motor fuel taxes as well as operating lease obligations as compared to the shorter settlement of receivables for fuel and rent.
Investing Activities
We incurred capital expenditures of $21.9$8.9 million and $10.8$10.6 million for the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, respectively. The increasedecrease was largely driven by a reduction in EMV upgrades andduring 2022, partially offset by the rebranding of certain sites, including the sites beingacquired from 7-Eleven. We paid $1.9 million during the three months ended March 31, 2022 in connection with the closing of the final three sites acquired from 7-Eleven. We received $5.6$1.5 million and $10.0$0.9 million in proceeds primarily from salesthe sale of assets, largely driven bysites in connection with our real estate rationalization effort duringfor the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, respectively. We paid $4.2 million during the six months ended June 30, 2021 in connection with our acquisition of assets from 7-Eleven. We paid $22.3 million during the six months ended June 30, 2020 in connection with our acquisition of retail and wholesale assets. Lastly, we received $16.4 million from Circle K primarily in connection with the CST Fuel Supply Exchange that closed in March 2020.
Financing Activities
We paid $39.8$19.9 million in distributions and made net borrowings on our CAPL Credit Facilityfor each of $20.6 million for the sixthree months ended June 30,March 31, 2022 and 2021. We paid $38.1 million in distributionsFor the three months ended March 31, 2022 and 2021, respectively, we made total net repayments on our CAPL Credit Facilitycredit facilities of $15.3$19.5 million forand $13.0 million. We received $24.5 million in net proceeds from the sixissuance of preferred membership interests during the three months ended June 30, 2020.March 31, 2022.
Distributions
Distribution activity for 2021 was as follows:
Quarter Ended |
| Record Date |
| Payment Date |
| Cash Distribution (per unit) |
|
| Cash Distribution (in thousands) |
| ||
December 31, 2020 |
| February 2, 2021 |
| February 9, 2021 |
| $ | 0.5250 |
|
| $ | 19,912 |
|
March 31, 2021 |
| May 4, 2021 |
| May 11, 2021 |
|
| 0.5250 |
|
|
| 19,916 |
|
June 30, 2021 |
| August 3, 2021 |
| August 10, 2021 |
|
| 0.5250 |
|
|
| 19,924 |
|
Quarter Ended |
| Record Date |
| Payment Date |
| Cash Distribution |
|
| Cash Distribution |
| ||
December 31, 2021 |
| February 3, 2022 |
| February 10, 2022 |
| $ | 0.5250 |
|
| $ | 19,942 |
|
March 31, 2022 |
| May 3, 2022 |
| May 11, 2022 |
|
| 0.5250 |
|
|
| 19,951 |
|
The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy at any time. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will continue to pay distributions in the future.
Debt
As of June 30, 2021,March 31, 2022, our debt and finance lease obligations consisted of the following (in thousands):
CAPL Credit Facility |
| $ | 533,781 |
|
| $ | 630,000 |
|
JKM Credit Facility |
| 163,580 |
| |||||
Finance lease obligations |
|
| 18,394 |
|
|
| 16,150 |
|
Total debt and finance lease obligations |
|
| 552,175 |
|
| 809,730 |
| |
Current portion |
|
| 2,679 |
|
|
| 2,774 |
|
Noncurrent portion |
|
| 549,496 |
|
| 806,956 |
| |
Deferred financing costs, net |
|
| 2,737 |
|
|
| 7,922 |
|
Noncurrent portion, net of deferred financing costs |
| $ | 546,759 |
|
| $ | 799,034 |
|
27
Taking the interest rate swap contracts into account, our effective interest rate on our CAPL Credit Facility at June 30, 2021March 31, 2022 was 2.3%2.9% (our applicable margin was 2.0%2.5% as of June 30, 2021)March 31, 2022). Letters of credit outstanding under our CAPL Credit Facility at June 30, 2021March 31, 2022 totaled $4.0 million.
See “Recent Developments—AcquisitionOur effective interest rate on our JKM Credit Facility at March 31, 2022 was 2.8% (our applicable margin was 2.5% as of Assets from 7-Eleven” for information regarding a newMarch 31, 2022). Letters of credit agreement and an amendment ofoutstanding under our existing credit agreement, both entered into in July 2021.JKM Credit Facility at March 31, 2022 totaled $0.8 million.
The amount of availability under our CAPL Credit Facility at AugustMay 5, 2021, after taking into consideration the July 2021 amendment and debt covenant restrictions, was $159.2 million.
The amount of availability under our JKM Credit Facility at August 5, 2021,2022, after taking into consideration debt covenant restrictions, was $134.8$133.5 million.
The amount of availability under the JKM Credit Facility at May 5, 2022, after taking into consideration debt covenant restrictions, was $9.6 million.
Capital Expenditures
We make investments to expand, upgrade and enhance existing assets. We categorize our capital requirements as either sustaining capital expenditures, growth capital expenditures or acquisition capital expenditures. Sustaining capital expenditures are those capital expenditures required to maintain our long-term operating income or operating capacity. Acquisition and growth capital expenditures are those capital expenditures that we expect will increase our operating income or operating capacity over the long term. We have the ability to fund our capital expenditures by additional borrowings under our CAPL Credit Facility, JKM Credit Facility, or, if available to us on acceptable terms, accessing the capital markets and issuing additional equity, debt securities or other options, such as the sale of assets. Our ability to access the capital markets may have an impact on our ability to fund acquisitions. We may not be able to complete any offering of securities or other options on terms acceptable to us, if at all.
The following table outlines our capital expenditures (in thousands):
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| Six Months Ended June 30, |
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| Three Months Ended March 31, |
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| 2021 |
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| 2020 |
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| 2022 |
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| 2021 |
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Sustaining capital |
| $ | 2,432 |
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| $ | 1,047 |
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| $ | 1,554 |
| $ | 1,392 |
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Growth |
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| 19,479 |
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| 9,713 |
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| 7,380 |
| 9,229 |
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Acquisitions |
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| 4,166 |
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| 22,342 |
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| 1,885 |
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| — |
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Total capital expenditures and acquisitions |
| $ | 26,077 |
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| $ | 33,102 |
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| $ | 10,819 |
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| $ | 10,621 |
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Growth capital expenditures increaseddecreased primarily asdue a result ofdecrease in EMV upgrades andduring 2022 as compared with 2021, partially offset by the rebranding of certain sites, including the sites being acquired from 7-Eleven.
Other Matters Impacting Liquidity and Capital Resources
Concentration of Customers
Approximately 12%For the three months ended March 31, 2022 and 2021, respectively, approximately 22% and 18% of our rent income for the six months ended June 30, 2021 was from onetwo multi-site operator.operators.
Outlook
As noted previously, the prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations, which affect our motor fuel gross profit. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit” for additional information.
Our results for 20212022 relative to 20202021 are anticipated to be impacted by the following:acquisition of assets from 7-Eleven, which is anticipated to increase gross profit both within the wholesale and retail segments.
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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.
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New Accounting Policies
There is no new accounting guidance effective or pending adoption that has had or is anticipated to have a material impact on our financial statements.
Critical Accounting Policies Involving Critical Accounting Estimates
There have been no material changes to the critical accounting policies described in our Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No significant changes to our market risk have occurred since December 31, 2020.2021. For a discussion of market risks affecting us, refer to Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk” included in our Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief AccountingFinancial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.March 31, 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 Rule 13a-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2021,March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We hereby incorporate by reference into this Item our disclosures made in Part I, Item 1 of this report included in Note 1011 of the financial statements.
ITEM 1A. RISK FACTORS
There were no material changes toin the risk factors disclosed in the section entitled “Risk Factors”"Risk Factors" in our Form 10-K during the period covered by this report.
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ITEM 6. EXHIBITS
Exhibit No. | Description | |
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10.2 | ||
31.1 * | ||
31.2 * | ||
32.1*† | Certification of Principal Executive Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350 | |
32.2*† | Certification of Principal Financial Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350 | |
101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
104* | Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101 |
* Filed herewith † Not considered to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. 30 SIGNATURE
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CROSSAMERICA PARTNERS LP | ||
By: | CROSSAMERICA GP LLC, its General Partner | |
By: | /s/ | |
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Chief | ||
(Duly Authorized Officer and Principal Financial Officer) |
Date: AugustMay 9, 20212022
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