Exhibit 99.5
SUSSER HOLDINGS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2015 AND MARCH 30, 2014
SUSSER HOLDINGS CORPORATION
TABLE OF CONTENTS
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Unaudited Consolidated Balance Sheets as of December 31, 2014 and March 31, 2015 | 1 | |||
Unaudited Consolidated Statements of Operations and Comprehensive Income for the three months ended March 30, 2014 (Predecessor) and March 31, 2015 (Successor) | 2 | |||
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2015 (Successor) | 3 | |||
Unaudited Consolidated Statements of Cash Flows for the three months ended March 30, 2014 (Predecessor) and March 31, 2015 (Successor) | 4 | |||
Notes to Unaudited Consolidated Financial Statements | 5 |
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Susser Holdings Corporation
Consolidated Balance Sheets
Unaudited
(in thousands, except share amounts)
December 31, 2014 | March 31, 2015 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 58,236 | $ | 49,308 | ||||
Accounts receivable, net of allowance for doubtful accounts of $77 at December 31, 2014 and $92 at March 31, 2015 | 61,578 | 60,895 | ||||||
Inventories, net | 120,414 | 117,518 | ||||||
Other current assets | 23,276 | 17,022 | ||||||
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Total current assets | 263,504 | 244,743 | ||||||
Property and equipment, net | 1,052,357 | 1,096,790 | ||||||
Other assets: | ||||||||
Goodwill | 993,731 | 991,797 | ||||||
Intangible assets, net | 535,551 | 534,423 | ||||||
Investment in subsidiary, Sunoco LP | 121,617 | 120,375 | ||||||
Other noncurrent assets | 17,436 | 17,273 | ||||||
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Total assets | $ | 2,984,196 | $ | 3,005,401 | ||||
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Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 90,355 | $ | 92,656 | ||||
Accrued expenses and other current liabilities | 56,148 | 45,796 | ||||||
Current maturities of long-term debt | 15,558 | 17,086 | ||||||
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Total current liabilities | 162,061 | 155,538 | ||||||
Long-term debt | 489,666 | 510,065 | ||||||
Deferred tax liability, long-term portion | 406,225 | 399,059 | ||||||
Other noncurrent liabilities | 38,206 | 38,542 | ||||||
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Total liabilities | 1,096,158 | 1,103,204 | ||||||
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Commitments and contingencies: | ||||||||
Shareholders’ equity: | ||||||||
Susser Holdings Corporation shareholders’ equity: | ||||||||
Common stock, $.01 par value; 125,000,000 shares authorized; 21,812,724 issued and 21,794,575 outstanding at December 31, 2014 and March 31, 2015 | 217 | 217 | ||||||
Additional paid-in capital | 1,663,664 | 1,663,664 | ||||||
Treasury stock, common shares, at cost; 194,674 as of December 31, 2014 and March 31, 2015 | (1,282 | ) | (1,282 | ) | ||||
Retained earnings | 224,643 | 238,801 | ||||||
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Total Susser Holdings Corporation shareholders’ equity | 1,887,242 | 1,901,400 | ||||||
Noncontrolling interest | 796 | 797 | ||||||
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Total shareholders’ equity | 1,888,038 | 1,902,197 | ||||||
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Total liabilities and shareholders’ equity | $ | 2,984,196 | $ | 3,005,401 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
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Susser Holdings Corporation
Consolidated Statements of Operations and Comprehensive Income
Unaudited
(in thousands)
Three Months Ended | ||||||||||
March 30, 2014 | March 31, 2015 | |||||||||
Predecessor | Successor | |||||||||
Revenues: | ||||||||||
Merchandise sales | $ | 276,375 | $ | 307,884 | ||||||
Motor fuel sales | 1,366,577 | 672,673 | ||||||||
Other income | 14,663 | 12,802 | ||||||||
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Total revenues | 1,657,615 | 993,359 | ||||||||
Cost of sales: | ||||||||||
Merchandise | 182,563 | 205,053 | ||||||||
Motor fuel | 1,314,338 | 615,182 | ||||||||
Other | 1,271 | 420 | ||||||||
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Total cost of sales | 1,498,172 | 820,655 | ||||||||
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Gross profit | 159,443 | 172,704 | ||||||||
Operating expenses: | ||||||||||
Personnel | 58,266 | 65,551 | ||||||||
General and administrative | 17,457 | 9,833 | ||||||||
Other operating | 46,093 | 46,066 | ||||||||
Rent | 11,826 | 12,177 | ||||||||
Loss on disposal of assets and impairment charge | 973 | 79 | ||||||||
Depreciation, amortization and accretion | 17,041 | 21,570 | ||||||||
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Total operating expenses | 151,656 | 155,276 | ||||||||
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Income from operations | 7,787 | 17,428 | ||||||||
Other income (expense): | ||||||||||
Interest expense, net | (3,172 | ) | (2,558 | ) | ||||||
Equity investment in earnings of affiliates | — | 5,370 | ||||||||
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Total other expense, net | (3,172 | ) | 2,812 | |||||||
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Income before income taxes | 4,615 | 20,240 | ||||||||
Income tax expense | (1,389 | ) | (6,081 | ) | ||||||
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Net income and comprehensive income | 3,226 | 14,159 | ||||||||
Less: Net income and comprehensive income attributable to noncontrolling interest | 5,049 | 1 | ||||||||
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Net income (loss) and comprehensive income (loss) attributable to Susser Holdings Corporation | $ | (1,823 | ) | $ | 14,158 | |||||
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The accompanying notes are an integral part of these consolidated financial statements.
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Susser Holdings Corporation
Consolidated Statements of Shareholders’ Equity
Unaudited
(in thousands)
Susser Holdings Corporation Shareholders | ||||||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||||
Noncontrolling Interest | Shares | Par Value | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Total | ||||||||||||||||||||||
Balance at December 31, 2014 | $ | 796 | 21,795 | $ | 217 | $ | 1,663,664 | $ | (1,282 | ) | $ | 224,643 | $ | 1,888,038 | ||||||||||||||
Net income | 1 | — | — | — | — | 14,158 | 14,159 | |||||||||||||||||||||
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Balance at March 31, 2015 | $ | 797 | 21,795 | $ | 217 | $ | 1,663,664 | $ | (1,282 | ) | $ | 238,801 | $ | 1,902,197 | ||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
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Susser Holdings Corporation
Consolidated Statements of Cash Flows
Unaudited
(in thousands)
Three Months Ended | ||||||||||
March 30, 2014 | March 31, 2015 | |||||||||
Predecessor | Successor | |||||||||
Cash flows from operating activities: | ||||||||||
Net income and comprehensive income | $ | 3,226 | $ | 14,159 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||
Depreciation, amortization and accretion | 17,041 | 21,570 | ||||||||
Amortization of deferred financing fees/debt discount, net | 264 | — | ||||||||
Loss on disposal of assets and impairment charge | 973 | 79 | ||||||||
Equity in earnings in unconsolidated affiliate | — | (5,370 | ) | |||||||
Distributions from unconsolidated affiliate | — | 6,612 | ||||||||
Non-cash stock based compensation | 3,205 | — | ||||||||
Deferred income tax | 650 | (6,582 | ) | |||||||
Excess tax benefits from stock-based compensation | (1,665 | ) | — | |||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||
Accounts receivable | (45,982 | ) | 683 | |||||||
Inventories | (20,508 | ) | 2,896 | |||||||
Other assets | (201 | ) | 15,877 | |||||||
Accounts payable | 29,758 | (1,280 | ) | |||||||
Accrued liabilities | 1,137 | (10,352 | ) | |||||||
Other noncurrent liabilities | (2,877 | ) | (7,517 | ) | ||||||
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Net cash provided by (used in) operating activities | (14,979 | ) | 30,775 | |||||||
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Cash flows from investing activities: | ||||||||||
Capital expenditures | (44,295 | ) | (87,863 | ) | ||||||
Purchase of intangibles | (920 | ) | — | |||||||
Proceeds from disposal of property and equipment | 10 | 174 | ||||||||
Acquisition, net of cash acquired | (93,915 | ) | — | |||||||
Redemption of marketable securities | 25,952 | — | ||||||||
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Net cash used in investing activities | (113,168 | ) | (87,689 | ) | ||||||
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Cash flows from financing activities: | ||||||||||
Proceeds from issuance of long-term debt | — | 24,855 | ||||||||
Payments on long-term debt | (25,873 | ) | (2,927 | ) | ||||||
Revolving line of credit, net | 157,320 | — | ||||||||
Proceeds from financing arrangements | — | 26,058 | ||||||||
Proceeds from issuance of equity, net of issuance costs | 2,257 | — | ||||||||
Purchase of shares for treasury | (8 | ) | — | |||||||
Excess tax benefits from stock-based compensation | 1,665 | — | ||||||||
Distributions to noncontrolling unitholders | (5,305 | ) | — | |||||||
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Net cash provided by (used in) financing activities | 130,056 | 47,986 | ||||||||
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Net increase (decrease) in cash | 1,909 | (8,928 | ) | |||||||
Cash and cash equivalents at beginning of year | 22,461 | 58,236 | ||||||||
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Cash and cash equivalents at end of period | $ | 24,370 | $ | 49,308 | ||||||
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Supplemental disclosure of noncash investing activity: | ||||||||||
Capital expenditures included in accounts payable and accruals at end of period | $ | 3,648 | $ | 3,580 |
The accompanying notes are an integrated part of these consolidated financial statements.
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Susser Holdings Corporation
Notes to Consolidated Financial Statements
Unaudited
1. | Organization and Principles of Consolidation |
The consolidated financial statements are composed of Susser Holdings Corporation (“SUSS”, “Susser” or the “Company”), a Delaware Corporation, and its consolidated subsidiaries, which operate convenience stores and distribute motor fuels in Texas, New Mexico, Oklahoma and Louisiana. The Company was formed in May 2006 and in October 2006 completed an initial public offering (IPO). Susser, through its subsidiaries and predecessors, has been acquiring, operating and supplying motor fuel to service stations, convenience stores and commercial customers since the 1930’s.
On April 27, 2014, the Company entered into an Agreement and Plan of Merger (the “ETP Merger”) with Energy Transfer Partners, L.P. (“ETP”) and certain other related entities, under which ETP acquired the outstanding common shares of Susser. By acquiring Susser, ETP also indirectly acquired the general partner interest and the incentive distribution rights (“IDRs”) in Sunoco LP (formerly known as Susser Petroleum Partners LP), and approximately 11 million Sunoco LP common units (representing approximately 50.1% of Sunoco LP’s then outstanding units). Under the terms of the ETP Merger, the shareholders of Susser had the option to elect to receive either $80.25 in cash or 1.4506 ETP common units, or a combination of both, for each share held such that the that aggregate cash paid and common units issued each represent 50% of the aggregate merger consideration. All equity awards outstanding as of April 27, 2014 that had not vested on the date of completion of the ETP Merger immediately vested, with the exception of specified awards that subsequently vested on January 2, 2015. Upon consummation of the ETP Merger, awards subject to performance criteria vested as though the underlying performance criteria had been achieved at target levels. The ETP Merger closed on August 29, 2014, at which time our common stock ceased trading on the NYSE. See Note 3 for further information.
The consolidated financial statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. The Company’s primary operations are conducted by the following consolidated subsidiaries:
• | Stripes LLC (“Stripes”), a Texas limited liability company, operates convenience stores located in Texas, New Mexico and Oklahoma. |
• | Susser Petroleum Company LLC (“SPC”), a Texas limited liability company, operates a motor fuel consignment business and provides transportation logistics services in Texas, New Mexico, Oklahoma and Louisiana. SPC is a wholly owned subsidiary of Stripes. Prior to September 25, 2012, SPC also distributed motor fuels. |
• | Sunoco LP (“SUN” or the “Partnership”), a Delaware limited partnership, distributes motor fuel and other petroleum lubricant products through its consolidated subsidiaries to SUSS and third parties in Texas, New Mexico, Oklahoma, and Louisiana. SUN was formed in June 2012 and completed an initial public offering (“SUN IPO”) on September 25, 2012. |
Prior to September 2014, SUSS owned approximately 50% of the SUN common and subordinated units representing limited partner interests and owned 100% of SUN’s general partner, Susser Petroleum Partners GP LLC (“General Partner”). Subsequent to the ETP Merger, ETP acquired ownership of General Partner and the IDRs held by Susser for $83.0 million. Investments in affiliated companies in which the company exercises significant influence, but which it does not control, are accounted for in the accompanying consolidated financial statements under the equity method of accounting. As such, the Company’s investment in SUN is accounted for under the equity method of accounting effective from September 1, 2014. The Company’s consolidated statements of operations for all periods prior to September 1, 2014 include the revenues and expenses of SUN.
The Company also offers minimal third-party environmental, maintenance and construction management services to the petroleum industry (including its own sites) through its subsidiary Applied Petroleum Technologies, Ltd. (“APT”), a Texas limited partnership.
All significant intercompany accounts and transactions have been eliminated in consolidation.
2. | Summary of Significant Accounting Policies |
Interim Financial Statements
The accompanying interim consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles (“GAAP”) and all amounts at March 31, 2015 and for the three months ended March 30, 2014
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and 2015 are unaudited. Pursuant to Regulation S-X, certain information and disclosures normally included in the annual financial statements have been condensed or omitted. The consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in our Annual Report for the year ended December 31, 2014 filed July XX, 2015.
Significant Accounting Policies
As of March 31, 2015, there were no other changes in significant accounting policies from those described in the December 31, 2014 audited consolidated financial statements.
Recently Issued and Adopted Accounting Pronouncements
FASB ASU No. 2015-03. In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest - Imputation of Interest - (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” Debt issuance costs related to a recognized debt liability shall be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments in this ASU are effective for financial statements issued with fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The ASU requires retrospective application. We do not anticipate that the adoption of this ASU will have a material impact on the presentation of our financial statements.
FASB ASU No. 2015-05. In April 2015, the FASB issued ASU No. 2015-05 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. The amendments in this ASU are effective for financial statements issued with fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. We do not anticipate that the adoption of this ASU will have a material impact on the presentation of our financial statements.
3. | Merger and Acquisitions |
ETP Merger
As a result of the ETP Merger, Susser became a wholly-owned entity of ETP and applied “push down” accounting that required our assets and liabilities to be adjusted to fair value as of the date of the merger on August 29, 2014. Due to the application of “push down” accounting, our consolidated financial statements and certain footnote disclosures are presented in two distinct periods to indicate the application of two different bases of accounting between the periods presented. The periods prior to the ETP Merger are identified as “Predecessor” and the period after the ETP Merger is identified as “Successor”. For accounting purposes, management has designated the ETP Merger date as August 31, 2014, as the operating results and change in financial position for the intervening period are not material.
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Management, with the assistance of a third party valuation firm, has estimated the fair value of our assets and liabilities as of the date of acquisition by ETP. Our identifiable intangible assets consist primarily of trade names, customer relationships, and liquor licenses. The amount of goodwill recorded represents the excess of our estimated enterprise value over the fair value of our assets and liabilities. The value of certain assets and liabilities, including the determination of their respective tax basis are preliminary in nature, and are subject to adjustment as additional information is obtained about the facts and circumstances that existed at the acquisition date. Management is reviewing the valuation and confirming the results to determine the final purchase price allocation. As a result, material adjustments to this preliminary allocation may occur in the future. The following table summarizes the post-deconsolidated “push down” accounting allocation to our assets and liabilities as of the date presented (in thousands):
August 31, 2014 | ||||
Current assets | $ | 219,998 | ||
Property and equipment | 981,313 | |||
Goodwill | 991,797 | |||
Intangible assets | 541,055 | |||
Other noncurrent assets | 38,216 | |||
Current liabilities | (250,894 | ) | ||
Deferred tax liability | (308,380 | ) | ||
Other noncurrent liabilities | (544,377 | ) | ||
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Net assets | $ | 1,668,728 | ||
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Acquisitions
During the three months ended March 30, 2014, the Company completed one acquisition. The Company allocated the total purchase consideration to the assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. In making its purchase price allocations, the assets and liabilities acquired in these acquisitions were valued based upon estimated fair values at the date of acquisition. The estimates used in valuing all identifiable intangible assets were based upon assumptions believed to be reasonable at the date of acquisition. The acquisition is discussed below.
Sac-N-Pac Acquisition
The Company completed the acquisition of 48 convenience stores, 19 dealer supply contracts, one stand-alone branded quick-serve restaurant, five raw tracts of land for future store development and the right to acquire two tracts of land from related entities in January 2014 (“Sac-N-Pac Acquisition”). This transaction expands our retail and wholesale operations in a rapidly growing area of central Texas. The acquisition was recorded in the financial statements by allocating the purchase price to the assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the acquisition cost over the net amounts assigned to the fair value of the assets acquired and the liabilities assumed is recorded as goodwill. The following table summarizes the final purchase accounting allocation to our assets and liabilities as of the date presented (in thousands):
January 29, 2014 | ||||
Inventories | $ | 6,879 | ||
Property and equipment | 83,212 | |||
Goodwill and other intangible assets | 5,400 | |||
Recapture liabilities | (949 | ) | ||
Other liabilities | (627 | ) | ||
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Total consideration paid, net of cash acquired | $ | 93,915 | ||
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4. | Accounts Receivable |
Accounts receivable consisted of the following:
December 31, 2014 | March 31, 2015 | |||||||
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Accounts receivable, trade | $ | 4,913 | $ | 4,622 | ||||
Credit card receivables | 33,596 | 35,251 | ||||||
Vendor receivables for rebates, branding and others | 13,716 | 11,210 | ||||||
ATM fund receivables | 6,202 | 5,800 | ||||||
Notes receivable, short-term | 472 | 388 | ||||||
Other receivables | 2,756 | 3,716 | ||||||
Allowance for uncollectible accounts | (77 | ) | (92 | ) | ||||
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Accounts receivable, net | $ | 61,578 | $ | 60,895 | ||||
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An allowance for uncollectible accounts is provided based on management’s evaluation of outstanding accounts receivable.
5. | Inventories |
Effective September 1, 2014, we adopted the LIFO inventory method for fuel inventory, to align our accounting policy with that of ETP. The impact of this change was immaterial. As the LIFO method is only permitted to be applied to year-end inventory levels, we recorded an additional adjustment to increase fuel inventory by $16.0 million in December 2014, with a corresponding decrease to cost of sales. Additionally, due to the decline in fuel prices in late 2014, we recorded a $16.3 million write-down of the LIFO value of fuel inventory in December 2014.
Inventories consisted of the following:
December 31, 2014 | March 31, 2015 | |||||||
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Merchandise | $ | 72,287 | $ | 66,930 | ||||
Fuel-retail | 26,872 | 27,434 | ||||||
Fuel-consignment | 7,537 | 9,105 | ||||||
Lottery | 2,973 | 2,992 | ||||||
Equipment and maintenance spare parts | 11,210 | 11,514 | ||||||
Allowance for inventory shortage and obsolescence | (465 | ) | (457 | ) | ||||
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Inventories, net | $ | 120,414 | $ | 117,518 | ||||
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An allowance for inventory shortage and obsolescence is provided based on historical shortage trends and management’s assessment of any inventory obsolescence.
6. | Assets Not in Productive Use |
Assets Held and Used
Long-lived assets to be held and used at December 31, 2014 and March 31, 2015, classified as other noncurrent assets were $14.1 million and $14.3 million, respectively. These consist largely of under-performing retail stores that have been closed and excess land. These assets continue to be depreciated over their remaining useful life. There were no impairment charges recorded for the three month periods ended March 30, 2014 and March 31,2015, respectively. Fair value is determined based on prices of market comparables. These assets are being offered for sale; however, our expectation is that it may take longer than one year to close such sales.
Assets Held for Sale
Assets held for sale are currently under contract for sale and are expected to be closed within one year. The disposition of assets held for sale during the Predecessor three month period ended March 30, 2014 and the Successor three month period
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ended March 31, 2015 resulted in an immaterial gain or loss. These are included in gain/loss on disposal of assets and impairment charges in the Consolidated Statements of Operations and Comprehensive Income. As of December 31, 2014 and March 31, 2015, we had assets held for sale of $1.1 million and $0.9 million, respectively.
7. | Property and Equipment |
Property and equipment consisted of the following:
December 31, 2014 | March 31, 2015 | |||||||
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Land | $ | 237,455 | $ | 255,075 | ||||
Buildings and leasehold improvements | 537,724 | 574,775 | ||||||
Equipment | 246,686 | 264,442 | ||||||
Construction in progress | 55,812 | 46,616 | ||||||
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Total property and equipment | 1,077,677 | 1,140,908 | ||||||
Less: Accumulated depreciation | 25,320 | 44,118 | ||||||
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Property and equipment, net | $ | 1,052,357 | $ | 1,096,790 | ||||
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8. | Intangible Assets |
Goodwill
The following table reflects goodwill balances and activity for the years ended December 29, 2013 and December 31, 2014 and the three months ended March 31, 2015 (in thousands):
Balance at December 29, 2013 (Predecessor) | $ | 254,285 | ||
Goodwill related to Sac-N-Pac | 988 | |||
Goodwill related to ETP “push down” accounting, net of previously recognized goodwill | 738,458 | |||
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Balance at December 31, 2014 (Successor) | $ | 993,731 | ||
Goodwill adjustment related to ETP “pushdown” accounting | $ | (1,934 | ) | |
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Balance at March 31, 2015 | $ | 991,797 | ||
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No impairment charges related to goodwill were recognized in 2014 or the three month period ended March 31, 2015.
Other Intangibles
The Company has finite-lived intangible assets recorded that are amortized and indefinite-lived assets that do not amortize. The indefinite-lived assets are evaluated annually for impairment. The finite-lived intangible assets consist of customer relationships, favorable leasehold arrangements, trade names and certain franchise rights, all of which are amortized over the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. Customer relationships are being amortized over an average period of approximately 20 years. Favorable leasehold arrangements are being amortized over an average period of approximately 16 years. Loan origination costs were written off with the underlying debt.
Prior to September 2014, the Company’s Stripes and Laredo Taco Company trade names were being amortizied over 30 years. As of January 1, 2015, management deemed the Stripes and Laredo Taco Company trade names to be indefinite lived assets and ceased amortization.
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The following table presents the gross carrying amount and accumulated amortization for each major class of intangible assets, excluding goodwill, at December 31, 2014 and March 31, 2015:
December 31, 2014 | March 31, 2015 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Amount | Gross Carrying Amount | Accumulated Amortization | Net Amount | |||||||||||||||||||
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Indefinite-lived | ||||||||||||||||||||||||
Trade name | $ | — | $ | — | $ | — | $ | 490,000 | $ | 6,508 | $ | 483,492 | ||||||||||||
Liquor licenses | 16,000 | — | 16,000 | 16,000 | — | 16,000 | ||||||||||||||||||
Finite-lived | ||||||||||||||||||||||||
Customer relations | 13,222 | 1,715 | 11,507 | 13,222 | 1,790 | 11,432 | ||||||||||||||||||
Favorable lease arrangements | 22,720 | 1,018 | 21,702 | 22,720 | 997 | 21,723 | ||||||||||||||||||
Loan origination costs | — | — | — | — | — | — | ||||||||||||||||||
Trade names | 491,292 | 6,745 | 484,547 | 1,292 | 301 | 991 | ||||||||||||||||||
Other | 2,003 | 208 | 1,795 | 1,040 | 255 | 785 | ||||||||||||||||||
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Intangible assets, net | $ | 545,237 | $ | 9,686 | $ | 535,551 | $ | 544,274 | $ | 9,851 | $ | 534,423 | ||||||||||||
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Total amortization expense on finite-lived intangibles included in depreciation, amortization and accretion for the three months ended March 30, 2014 and 2015 was $0.3 million and $0.9 million, respectively. The loan fee amortization included in interest expense for the three months ended March 30, 2014 was $0.2 million. There was no amortization in interest expense recorded in 2015.
10. | Long-Term Debt |
Long-term debt consisted of the following:
December 31, 2014 | March 31, 2015 | |||||||
(in thousands) | ||||||||
Intercompany note payable to ETP, bearing interest at LIBOR plus 1.5% | $ | 235,000 | $ | 235,000 | ||||
Financing arrangement | 269,767 | 291,697 | ||||||
Other notes payable | 457 | 454 | ||||||
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Total debt | 505,224 | 527,151 | ||||||
Less: Current maturities | 15,558 | 17,086 | ||||||
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Long-term debt, net of current maturities | $ | 489,666 | $ | 510,065 | ||||
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As of March 31, 2015, the carrying value of the intercompany note payable and the financing arrangement approximates fair value. Other notes payable consist of long-term, fixed-rate mortgage notes ranging from 4.0% to 7.0% maturing from 2016 to 2031. The fair value of the other notes payable is based on the par value of the loans and an analysis of the net present value of remaining payments at a rate calculated off U.S. Treasury Securities. Fair value approximates carrying value on revolving credit facilities due to their variability. The estimated fair value of the other notes payable is calculated using Level 3 inputs.
Intercompany Note
On August 29, 2014, in connection with the merger with ETP, SUSS entered into an Intercompany Promissory Note (the “Intercompany Note”) with Heritage Holdings, Inc. providing SUSS with a line of credit of up to $350 million, maturing on December 31, 2017. Initial borrowings under the Intercompany Note were used to repay the 2013 SUSS Revolver and to fund miscellaneous closing costs associated with the merger with ETP. Borrowings under the Intercompany Note accrue interest at a rate equal to the three month London interbank offer rate plus 1.5%. SUSS pays interest on the unpaid principal balance on the first business day of each month. As of March 31, 2015, borrowings under the Intercompany Note were $235.0 million.
Financing Arrangements
The Company has entered into sale leaseback transactions with SUN for 72 of its company operated sites. The gross proceeds were $311.3 million and were used to pay down the revolving credit agreement, which had been used to fund the
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construction costs. For GAAP purposes, the Company has not met the criteria for sale leaseback accounting due to SUN being a related party and therefore transactions accounted for as financing arrangements over the course of the lease agreement. The debt related to this transaction is included in long-term debt.
Fair Value Measurements
We use fair value measurements to measure, among other items, purchased assets, investments, leases and derivative contracts. We also use them to assess impairment of properties, equipment, intangible assets and goodwill. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters, or is derived from such prices or parameters. Where observable prices or inputs are not available, use of unobservable prices or inputs is used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued.
ASC 820 “Fair Value Measurements and Disclosures” prioritizes the inputs used in measuring fair value into the following hierarchy:
Level 1 | Quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
Level 2 | Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; | |
Level 3 | Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. |
10. | Related-Party Transactions |
We lease nine convenience stores and two dealer sites from Sam L. Susser, several of his family members, and several entities wholly or partially owned by Mr. Susser. The leases are classified as operating leases and provide for minimum annual rentals of approximately $2.0 million in 2015 through 2017, $1.9 million in 2018 and $1.8 million in 2019. The lease expiration dates range from 2018 to 2021, with additional option periods extending from 2018 to 2062. The additional option periods generally contain future rent escalation clauses.
Sam L. Susser owns an aircraft, which was used by us for business purposes in the course of operations while he was Chief Executive Officer. We paid Mr. Susser a fee based on the number of hours flown, maintenance, and upkeep, and reimbursed the aircraft management company for fuel and the actual out-of-pocket costs of pilots and their related expenses for Company use of the aircraft. In connection with this arrangement, we made payments to Mr. Susser in the amount of $0.1 million during the three months ended March 30, 2014. The company made no payments for the charter air craft for the period January 1, 2015 through March 31, 2015. In connection with the ETP Merger, Mr. Susser stepped down as CEO and his use of the plane for business purposes has diminished substantially. We do not anticipate that his use in the future will be material. Based on current market rates for chartering of private aircraft, we believe that the terms of this arrangement are no worse than what we could have obtained in an arm’s length transaction.
Sam J. Susser and Jerry Susser collectively own a 14.82% noncontrolling interest in Susser Company, Ltd., a consolidated subsidiary of the Company. Susser Company, Ltd. owns two convenience store properties that are leased to the Company under operating leases, oil and gas royalties, and undeveloped properties. The lease payments to Susser Company are $47 thousand and $47 thousand for the three months ended March 30, 2014 and 2015, respectively. The future minimum lease payments are $0.2 million in 2015 through 2018 and $0.1 million in 2019. Sam J. and Jerry Susser do not receive any compensation or distributions as a result of their ownership of Susser Company, Ltd. and their voting rights have been assigned to a subsidiary owned by the Company.
In conjunction with the ETP transaction, we no longer consolidate SUN but include it as an equity method investment. Prior to the ETP transaction we had fully consolidated SUN and therefore eliminated intercompany transactions. As such, the following affiliated balances with both SUN and ETP are included in our balance sheet as of March 31, 2015:
• | SUN has purchased 72 sites from the Company since their IPO for a total of $311.3 million at March 31, 2015. These stores have been treated as financing obligations by the Company and the balances are included the tables for long-term debt presented in Note 9. |
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• | The Company purchases all of the fuel for resale at convenient stores and consignment locations from SUN. This payable related to these purchases was $49.2 million and is included in accounts payable. |
• | There is a $0.7 million receivable from ETP related to our payment on taxes due from employees of the Company in relation to stock vestings that occurred after the transaction. |
• | There is a 0.1 million receivable from Sunoco, LLC related to fuel sales with SPC. |
Related party transactions with SUN for the Predecessor three months ended March 30, 2014 and the Successor three months ended March 31, 2015 are as follows (in thousands):
Three Months Ended | ||||||||||
March 30, 2014 | March 31, 2015 | |||||||||
Predecessor | Successor | |||||||||
Motor fuel purchases from SUN | $ | 766,090 | $ | 487,500 | ||||||
General and administrative expenses allocated to SUN, including equity-based compensation | 835 | — | ||||||||
Allocated cost of employees to SUN | 3,414 | 3,011 | ||||||||
Distributions from SUN | 5,307 | 54 | ||||||||
Transportation charges to SUN for delivery of motor fuel | 13,257 | 14,519 | ||||||||
Rent Expense to SUN | 3,020 | 5,838 | ||||||||
Proceeds from sale-leaseback of stores to SUN | 27,300 | 25,156 | ||||||||
# of stores sold | 7 | 6 |
11. | Commitments and Contingencies |
Leases
The Company leases a portion of its convenience store properties under non-cancellable operating leases whose initial terms are typically 10 to 20 years, along with options that permit renewals for additional periods. Minimum rent is expensed on a straight-line basis over the term of the lease. In addition to minimum rental payments, certain leases require additional contingent payments based on sales or motor fuel volume. The Company is typically responsible for payment of real estate taxes, maintenance expenses and insurance.
The components of net rent expense are as follows:
Three Months Ended | ||||||||||
March 30, 2014 | March 31, 2015 | |||||||||
Predecessor | Successor | |||||||||
(in thousands) | ||||||||||
Cash rent: | ||||||||||
Store base rent | $ | 12,022 | $ | 12,007 | ||||||
Equipment rent | 347 | 239 | ||||||||
Contingent rent | 68 | 58 | ||||||||
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Total cash rent | 12,437 | 12,304 | ||||||||
Non-cash rent: | ||||||||||
Straight-line rent | (53 | ) | (127 | ) | ||||||
Amortization of deferred gain | (558 | ) | — | |||||||
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Net rent expense | $ | 11,826 | $ | 12,177 | ||||||
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Letters of Credit
Letter of Credit previously issued under the SUSS Revolver were assigned to ETP at the time of the ETP Merger. As of December 31, 2014, the total amount of these assigned letters of credit was $2.8 million.
12. | Interest Expense and Interest Income |
The components of net interest expense are as follows:
Three Months Ended | ||||||||||
March 30, 2014 | March 31, 2015 | |||||||||
Predecessor | Successor | |||||||||
(in thousands) | ||||||||||
Cash interest expense | $ | 3,122 | $ | 2,744 | ||||||
Capitalized interest | (88 | ) | (155 | ) | ||||||
Amortization of loan costs and issuance discount, net | 265 | — | ||||||||
Cash interest income | (127 | ) | (31 | ) | ||||||
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Interest expense, net | $ | 3,172 | $ | 2,558 | ||||||
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13. | Income Tax |
Our interim provision for income taxes is based on our estimated annual effective tax rate for the year of 32.1% plus any discrete items. For the three months ended March 31, 2015, our computed tax rate was 30.1%, as compared to the computed tax rate for the three months ended March 30, 2014 of 30.0%. These tax rates are computed as a percentage of net income before taxes and before reduction for noncontrolling interest. Included in our provision for income tax is a tax imposed by the state of Texas of 0.5% of gross profit in Texas (“margin tax”). SUN, as a limited partnership, is not generally subject to state and federal income tax, with the exception of the margin tax in the state of Texas. SUN is subject to margin tax in the state of Texas and is included in the SUSS combined margin tax return. In addition, SUSS includes its share of the components of SUN’s taxable income in its U.S. and state income tax returns.
It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in general and administrative expense. The Company files several income tax returns as well as either state income or franchise tax returns in Texas, Oklahoma, New Mexico and Louisiana.
On August 29, 2014, ETP acquired 100% of the outstanding stock of the Company. As a result of this transaction, ETP applied “push down” accounting that adjusted the book carrying value of its assets and liabilities to reflect their estimated fair values at the time of this transaction. This adjustment required the recording of additional deferred tax assets and liabilities to reflect the new differences in the book and tax basis. The net impact to deferred taxes associated with these estimated purchase accounting adjustments was the recording of an approximately $291 million of additional deferred tax liabilities with a corresponding increase in goodwill.
On September 19, 2014, the Company sold the general partner interest in SUN to its parent ETP. As a result of this transaction, the Company no longer consolidates SUN with the Company’s results. The de-consolidation of SUN included the removal of certain deferred tax attributes associated with the Partnership’ subsidiary, Propco, from the Company’s financial statements.
The Company has determined that it is more likely than not that all deferred tax assets will be realized, and has therefore determined that no valuation allowance is needed as of December 31, 2014 and March 31, 2015.
Uncertain Tax Positions
It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in general and administrative expense. The Company files income and gross franchise tax returns in the U.S. federal jurisdiction, Texas, Oklahoma, New Mexico and Louisiana. The Company is subject to examination in Texas for the 2009 through 2014 tax years. Federal, Oklahoma, New Mexico and Louisiana are subject to examination for 2011-2014 tax years.
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As of December 31, 2014, all tax positions taken by the Company are considered highly certain or more likely than not. There are no positions the Company reasonably anticipates will significantly increase or decrease within 12 months of the reporting date, and therefore no adjustments have been recorded related to unrecognized tax benefits.
14. | Share-Based Compensation |
The Company adopted the Susser Holdings Corporation 2006 Equity Incentive Plan (the 2006 Plan) on October 18, 2006. The 2006 Plan provides that an aggregate number of 2,637,277 shares may be issued under this plan. On May 21, 2013, the Company adopted the Susser Holdings Corporation 2013 Equity Incentive Plan (the 2013 Plan). The maximum aggregate number of shares of Common Stock that may be issued pursuant to awards granted under the 2013 Plan was 1,750,000. Any shares of Common Stock delivered under the 2013 Plan consisted of authorized and unissued shares, or treasury shares. Concurrent with the ETP Merger, substantially all of the outstanding grants vested, or were converted to ETP restricted or phantom units. No Susser options, restricted shares or restricted stock units remained outstanding subsequent to August 29, 2014.
Following is a summary of options, restricted stock and restricted stock units which have been granted under the Company’s plans:
Stock Options | ||||||||
Number of Options Outstanding | Weighted Average Exercise Price | |||||||
Balance at December 29, 2013 | 548,120 | 17.17 | ||||||
Granted | — | — | ||||||
Exercised | (194,255 | ) | 10.85 | |||||
Forfeited or expired | (10,500 | ) | 50.21 | |||||
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Balance at March 30, 2014 | 343,365 | $ | 19.73 | |||||
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Exercisable at March 30, 2014 | 234,061 | $ | 13.17 | |||||
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Vested and expected to vest at March 30, 2014 | 337,669 | $ | 19.77 | |||||
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Restricted Stock | ||||||||
Number of Shares | Grant-Date Average Fair Value Per Share | |||||||
Nonvested at December 29, 2013 | 159,558 | 29.39 | ||||||
Granted | 18,831 | 60.58 | ||||||
Vested | (8,740 | ) | 44.05 | |||||
Forfeited | (6,394 | ) | 28.33 | |||||
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Nonvested at March 30, 2014 | 163,255 | $ | 32.39 | |||||
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Restricted Stock Units | ||||||||
Number of Units | Grant-Date Average Fair Value Per Unit | |||||||
Nonvested at December 29, 2013 | 539,739 | 43.42 | ||||||
Granted | 191,009 | 58.15 | ||||||
Vested | — | — | ||||||
Forfeited (1) | (225,741 | ) | 44.26 | |||||
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Nonvested at March 30, 2014 | 505,007 | $ | 49.91 | |||||
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Remain subject to performance criteria | 332,408 | $ | 56.98 | |||||
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(1) | Includes a total of 186,397 units forfeited due to incomplete attainment of all performance criteria. |
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During the first quarter of 2014, we granted 18,831 shares of restricted stock with an aggregate fair value of $1.1 million. During the first quarter of 2014, we granted 191,009 restricted stock units with an aggregate fair market value of $11.1 million Included in the restricted stock units granted are 30,364 units subject to market performance conditions that were valued at an aggregate $1.4 million using a Lattice Model.
Phantom Common Unit Awards
Prior to the ETP Merger, SUN had issued a total of 54,669 phantom unit awards to certain directors and employees of SUSS under the Susser Petroleum Partners LP 2012 Long Term Incentive Plan (“2012 LTIP”), of which 6,354 were issued in 2014 with an aggregate fair value of $0.2 million. The fair value of each phantom unit on the grant date was equal to the market price of our common unit on that date, adjusted as necessary to reflect the right to receive distributions on unvested shares. The estimated fair value of our phantom units is amortized over the vesting period using the straight-line method. All unvested phantom awards outstanding at August 29, 2014 vested concurrent with the ETP Merger. Stock-based compensation expense was $3.2 million during the three months ended March 30, 2014.
15. | Subsequent Events |
Subsequent events have been evaluated through July 14, 2015, the date the consolidated financial statements were available to be issued.
On July 14, 2015, SUN entered into a Contribution Agreement (the “Contribution Agreement”) with the Company, Heritage Holdings, Inc. (“HHI”), ETP Holdco Corporation (“ETP Holdco” and together with HHI, the “Contributors”), Sunoco GP LLC, the General Partner of SUN, and ETP. Pursuant to the terms of the Contribution Agreement, SUN agreed to acquire from the Contributors 100% of the issued and outstanding shares of capital stock of the Company. Pursuant to the terms of the Contribution Agreement, ETP has agreed to guarantee all of the obligations of the Contributors under the Contribution Agreement.
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