Segment Reporting | Note 15. SEGMENT REPORTING We conduct our business in two segments: 1) the Wholesale segment and 2) the Retail segment. The Wholesale segment includes the wholesale distribution of motor fuel to lessee dealers, independent dealers, commission agents, DMS, Circle K and company operated retail sites. We have exclusive motor fuel distribution contracts with lessee dealers who lease the property from us. We also have exclusive distribution contracts with independent dealers to distribute motor fuel but do not collect rent from the independent dealers. Similar to lessee dealers, we have motor fuel distribution agreements with DMS and Circle K and collect rent from both. The Retail segment includes the sale of convenience merchandise items, the retail sale of motor fuel at company operated retail sites and the retail sale of motor fuel at retail sites operated by commission agents. A commission agent is a retail site where we retain title to the motor fuel inventory and sell it directly to our end user customers. At commission agent retail sites, we manage motor fuel inventory pricing and retain the gross profit on motor fuel sales, less a commission to the agent who operates the retail site. Similar to our Wholesale segment, we also generate revenues through leasing or subleasing real estate in our Retail segment. Unallocated items consist primarily of general and administrative expenses, depreciation, amortization and accretion expense, gains on dispositions and lease terminations, net, and the elimination of the Retail segment’s intersegment cost of revenues from motor fuel sales against the Wholesale segment’s intersegment revenues from motor fuel sales. The profit in ending inventory generated by the intersegment motor fuel sales is also eliminated. Total assets by segment are not presented as management does not currently assess performance or allocate resources based on that data. The following table reflects activity related to our reportable segments (in thousands): Wholesale Retail Unallocated Consolidated Three Months Ended June 30, 2019 Revenues from fuel sales to external customers $ 442,411 $ 120,810 $ — $ 563,221 Intersegment revenues from fuel sales 95,009 — (95,009 ) — Revenues from food and merchandise sales — 19,637 — 19,637 Rent income 19,818 2,142 — 21,960 Other revenue 710 — — 710 Total revenues $ 557,948 $ 142,589 $ (95,009 ) $ 605,528 Income from CST Fuel Supply equity interests $ 3,734 $ — $ — $ 3,734 Operating income (loss) (a) $ 29,679 $ 1,299 $ (17,058 ) $ 13,920 Three Months Ended June 30, 2018 Revenues from fuel sales to external customers $ 477,562 $ 147,494 $ — $ 625,056 Intersegment revenues from fuel sales 117,117 — (117,117 ) — Revenues from food and merchandise sales — 26,134 — 26,134 Rent income 19,394 2,067 — 21,461 Other revenue 644 — — 644 Total revenues $ 614,717 $ 175,695 $ (117,117 ) $ 673,295 Income from CST Fuel Supply equity interests $ 3,740 $ — $ — $ 3,740 Operating income (loss) (a) $ 30,189 $ 1,898 $ (33,655 ) $ (1,568 ) Six Months Ended June 30, 2019 Revenues from fuel sales to external customers $ 772,324 $ 220,410 $ — $ 992,734 Intersegment revenues from fuel sales 170,890 — (170,890 ) — Revenues from food and merchandise sales — 39,653 — 39,653 Rent income 39,454 4,144 — 43,598 Other revenue 1,329 — — 1,329 Total revenues $ 983,997 $ 264,207 $ (170,890 ) $ 1,077,314 Income from CST Fuel Supply equity interests $ 7,160 $ - $ - $ 7,160 Operating income (loss) (a) $ 53,967 $ 1,907 $ (34,342 ) $ 21,532 Six Months Ended June 30, 2018 Revenues from fuel sales to external customers $ 859,562 $ 274,811 $ — $ 1,134,373 Intersegment revenues from fuel sales 215,510 — (215,510 ) — Revenues from food and merchandise sales — 48,720 — 48,720 Rent income 39,149 4,033 — 43,182 Other revenue 1,590 — — 1,590 Total revenues $ 1,115,811 $ 327,564 $ (215,510 ) $ 1,227,865 Income from CST Fuel Supply equity interests $ 7,545 $ — $ — $ 7,545 Operating income (loss) (a) $ 56,353 $ 3,247 $ (53,744 ) $ 5,856 (a) As discussed in Note 1, as a result of the adoption of ASC 842, operating income for the three and six months ended June 30, 2019 is not comparable to operating income for the three and six months ended June 30, 2018. Most significantly, payments on our previous failed sale-leaseback obligations were characterized as principal and interest expense in periods prior to 2019. Starting in 2019, these payments are characterized as rent expense and thus reduce operating income. These payments for the Wholesale and Retail segments amounted to approximately $1.7 million and $0.1 million for the three months ended June 30, 2018 and $3.3 million and $0.3 million for the six months ended June 30, 2018, respectively. Receivables relating to the revenue streams above are as follows (in thousands): June 30, December 31, 2019 2018 Receivables from fuel and merchandise sales $ 26,118 $ 19,247 Receivables for rent and other lease-related charges 5,988 6,610 Total accounts receivable $ 32,106 $ 25,857 Performance obligations are satisfied as fuel is delivered to the customer. Many of our 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 $6.2 million and $5.7 million at June 30, 2019 and December 31, 2018, respectively. Amortization of such costs is recorded against operating revenues and amounted to $0.2 million and $0.4 million for the three and six months ended June 30, 2019 and 2018, respectively. Receivables from rent and other lease-related charges are generally collected at the beginning of the month. Dealerization of Our Remaining Company Operated Sites When we convert company owned retail sites from our Retail segment to lessee dealers in our Wholesale segment, we no longer generate revenues from the retail sale of motor fuel or merchandise at these stores subsequent to the date of conversion and we no longer incur retail operating expenses related to these retail sites. However, we continue to supply these retail sites with motor fuel on a wholesale basis pursuant to the fuel supply contract with the lessee dealer. Further, we continue to own or lease the property and earn rental income under lease/sublease agreements with the lessee dealers under triple net leases. The lessee dealer owns all motor fuel and convenience merchandise and retains all gross profit on such operating activities. In June 2019, we entered into master fuel supply and master lease agreements with Applegreen, under which we will dealerize 46 sites currently company operated in the Upper Midwest. The master fuel supply and master lease agreements have an initial 10-year term with four 5-year renewal options. The sites are expected to transition during the third quarter of 2019. Base rent generally increases by 1.5% annually, including during the renewal options. Applegreen has the right to sever up to 10 specifically identified sites, for which notice must be provided prior to the end of the first year, and the effective date will be after the second year. Applegreen has the right to sever up to eight of the remaining 36 sites with proper notice. We have committed to making certain EMV upgrades at these 46 sites by October 1, 2020. After this transition, we will not have any company operated sites and our sole focus will be on our wholesale and commission operations. |