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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

 

Commission File No. 001-35711

img124394997_0.jpg 

 

CROSSAMERICA PARTNERS LP

(Exact name of registrant as specified in its charter)

 

Delaware

 

45-4165414

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

 

645 Hamilton Street, Suite 400

Allentown, PA

 

18101

(Zip Code)

(610) 625-8000

(Address of Principal Executive Offices)

 

 (Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Units

CAPL

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer

Non-accelerated filer ☐

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☑

As of August 3, 2023, the registrant had outstanding 37,970,720 common units.

 


 

TABLE OF CONTENTS

 

 

PAGE

 

 

 

Commonly Used Defined Terms

 

i

 

 

 

PART I - FINANCIAL INFORMATION

 

1

Item 1. Financial Statements

 

1

Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

 

1

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022

 

2

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022

 

3

Consolidated Statements of Equity and Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022

 

4

Condensed Notes to Consolidated Financial Statements

 

5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

33

Item 4. Controls and Procedures

 

33

 

 

 

PART II - OTHER INFORMATION

 

34

Item 1. Legal Proceedings

 

34

Item 1A. Risk Factors

 

34

Item 6. Exhibits

 

34

 

 

 

SIGNATURE

 

35

 

 


 

COMMONLY USED DEFINED TERMS

 

The following is a list of certain acronyms and terms generally used in the industry and throughout this document:

 

 

CrossAmerica Partners LP and subsidiaries:

 

CrossAmerica

 

CrossAmerica Partners LP, the Partnership, CAPL, we, us, our

 

 

 

Holdings

 

CAPL JKM Holdings LLC, an indirect wholly-owned subsidiary of CrossAmerica and sole member of CAPL JKM Partners

 

 

 

CAPL JKM Partners

 

CAPL JKM Partners LLC, a wholly-owned subsidiary of Holdings

 

 

 

Joe’s Kwik Marts

 

Joe’s Kwik Marts LLC, a wholly-owned subsidiary of CAPL JKM Partners

 

 

 

LGWS

 

Lehigh Gas Wholesale Services, Inc., an indirect wholly-owned subsidiary of CrossAmerica

 

 

 

CrossAmerica Partners LP related parties:

 

DMI

 

Dunne Manning Inc. (formerly Lehigh Gas Corporation), an entity affiliated with the Topper Group

 

 

 

General Partner

 

CrossAmerica GP LLC, the General Partner of CrossAmerica, a Delaware limited liability company, indirectly owned by the Topper Group.

 

 

 

Topper Group

 

Joseph V. Topper, Jr., collectively with his affiliates and family trusts that have ownership interests in the Partnership. Joseph V. Topper, Jr. is the founder of the Partnership and a member of the Board. The Topper Group is a related party and large holder of our common 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

 

7-Eleven, Inc.

 

 

 

ASC

 

Accounting Standards Codification

 

 

 

AOCI

 

Accumulated other comprehensive income

 

 

 

ASU

 

Accounting Standards Update

 

 

 

Board

 

Board of Directors of our General Partner

 

 

 

Bonus Plan

 

The Performance-Based Bonus Compensation Policy is one of the key components of “at-risk” compensation. The Bonus Plan is utilized to reward short-term performance achievements and to motivate and reward employees for their contributions toward meeting financial and strategic goals.

 

 

 

CAPL Credit Facility

 

Credit Agreement, dated as of April 1, 2019, as amended by the First Amendment to Credit Agreement, dated as of November 19, 2019, and by the Second Amendment to Credit Agreement, dated as of July 28, 2021, and as amended and restated by the Amendment and Restatement Agreement, dated as of March 31, 2023, among the Partnership and Lehigh Gas Wholesale Services, Inc., as borrowers, the guarantors from time to time party thereto, the lenders from time to time party thereto and Citizens Bank, N.A., as administrative agent.

 

 

 

CSS

 

Community Service Stations, Inc.

 

 

 

DTW

 

Dealer tank wagon contracts, which are variable market-based cent per gallon priced wholesale motor fuel distribution or supply contracts; DTW also refers to the pricing methodology under such contracts

 

 

 

EBITDA

 

Earnings before interest, taxes, depreciation, amortization and accretion, a non-GAAP financial measure

 

 

 

EMV

 

Payment method based upon a technical standard for smart payment cards, also referred to as chip cards

 

 

 

i


 

Exchange Act

 

Securities Exchange Act of 1934, as amended

 

 

 

Form 10-K

 

CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, 2022

 

 

 

Internal Revenue Code

 

Internal Revenue Code of 1986, as amended

 

 

 

IPO

 

Initial public offering of CrossAmerica Partners LP on October 30, 2012

 

 

 

JKM Credit Facility

 

Credit Agreement, dated as of July 16, 2021, as amended on July 29, 2021 among CAPL JKM Partners, Holdings and Manufacturers and Traders Trust Company, as administrative agent, swingline lender and issuing bank. The Term Loan Facility was paid off and the JKM Credit Facility was terminated on March 31, 2023.

 

 

 

LIBOR

 

London Interbank Offered Rate

 

 

 

MD&A

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

NYSE

 

New York Stock Exchange

 

 

 

Omnibus Agreement

 

The Omnibus Agreement, effective January 1, 2020, by and among the Partnership, the General Partner and DMI. The terms of the Omnibus Agreement were approved by the independent conflicts committee of the Board, which is composed of the independent directors of the Board. Pursuant to the Omnibus Agreement, DMI agrees, among other things, to provide, or cause to be provided, to the Partnership certain management services at cost without markup.

 

 

 

Partnership Agreement

 

Second Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated as of February 6, 2020

 

 

 

Predecessor Entity

 

Wholesale distribution contracts and real property and leasehold interests contributed to the Partnership in connection with the IPO

 

 

 

SEC

 

U.S. Securities and Exchange Commission

 

 

 

SOFR

 

Secured Overnight Financing Rate

 

 

 

Term Loan Facility

 

$185 million delayed draw term loan facility provided under the JKM Credit Facility, which was paid off and terminated March 31, 2023

 

 

 

U.S. GAAP

 

U.S. Generally Accepted Accounting Principles

 

 

 

WTI

 

West Texas Intermediate crude oil

ii


 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROSSAMERICA PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, except unit data)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,491

 

 

$

16,054

 

Accounts receivable, net of allowances of $723 and $686, respectively

 

 

34,734

 

 

 

30,825

 

Accounts receivable from related parties

 

 

668

 

 

 

743

 

Inventory

 

 

51,965

 

 

 

47,307

 

Assets held for sale

 

 

1,001

 

 

 

983

 

Current portion of interest rate swap contracts

 

 

15,442

 

 

 

13,827

 

Other current assets

 

 

7,818

 

 

 

8,667

 

Total current assets

 

 

116,119

 

 

 

118,406

 

Property and equipment, net

 

 

709,099

 

 

 

728,379

 

Right-of-use assets, net

 

 

156,897

 

 

 

164,942

 

Intangible assets, net

 

 

103,450

 

 

 

113,919

 

Goodwill

 

 

99,409

 

 

 

99,409

 

Interest rate swap contracts, less current portion

 

 

4,657

 

 

 

3,401

 

Other assets

 

 

27,944

 

 

 

26,142

 

Total assets

 

$

1,217,575

 

 

$

1,254,598

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of debt and finance lease obligations

 

$

2,985

 

 

$

11,151

 

Current portion of operating lease obligations

 

 

35,076

 

 

 

35,345

 

Accounts payable

 

 

76,953

 

 

 

77,048

 

Accounts payable to related parties

 

 

8,872

 

 

 

7,798

 

Accrued expenses and other current liabilities

 

 

25,068

 

 

 

23,144

 

Motor fuel and sales taxes payable

 

 

21,359

 

 

 

20,813

 

Total current liabilities

 

 

170,313

 

 

 

175,299

 

Debt and finance lease obligations, less current portion

 

 

760,064

 

 

 

761,638

 

Operating lease obligations, less current portion

 

 

127,277

 

 

 

135,220

 

Deferred tax liabilities, net

 

 

11,170

 

 

 

10,588

 

Asset retirement obligations

 

 

47,083

 

 

 

46,431

 

Other long-term liabilities

 

 

46,071

 

 

 

46,289

 

Total liabilities

 

 

1,161,978

 

 

 

1,175,465

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred membership interests

 

 

27,253

 

 

 

26,156

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Common units— 37,952,950 and 37,937,604 units issued and
   outstanding at June 30, 2023 and December 31, 2022, respectively

 

 

9,217

 

 

 

36,508

 

Accumulated other comprehensive income

 

 

19,127

 

 

 

16,469

 

Total equity

 

 

28,344

 

 

 

52,977

 

Total liabilities and equity

 

$

1,217,575

 

 

$

1,254,598

 

 

The accompanying notes are an integral part of these consolidated financial statements.

1


 

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Thousands of Dollars, except unit and per unit amounts)

(Unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating revenues (a)

 

$

1,145,396

 

 

$

1,475,033

 

 

$

2,161,555

 

 

$

2,568,244

 

Costs of sales (b)

 

 

1,047,672

 

 

 

1,386,088

 

 

 

1,981,772

 

 

 

2,400,469

 

Gross profit

 

 

97,724

 

 

 

88,945

 

 

 

179,783

 

 

 

167,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (c)

 

 

49,798

 

 

 

42,216

 

 

 

95,421

 

 

 

84,325

 

General and administrative expenses

 

 

7,475

 

 

 

5,680

 

 

 

13,214

 

 

 

12,163

 

Depreciation, amortization and accretion expense

 

 

19,298

 

 

 

19,919

 

 

 

39,118

 

 

 

40,194

 

Total operating expenses

 

 

76,571

 

 

 

67,815

 

 

 

147,753

 

 

 

136,682

 

Gain (loss) on dispositions and lease terminations, net

 

 

6,700

 

 

 

(58

)

 

 

4,933

 

 

 

(302

)

Operating income

 

 

27,853

 

 

 

21,072

 

 

 

36,963

 

 

 

30,791

 

Other income, net

 

 

163

 

 

 

102

 

 

 

424

 

 

 

232

 

Interest expense

 

 

(10,683

)

 

 

(7,321

)

 

 

(22,695

)

 

 

(13,982

)

Income before income taxes

 

 

17,333

 

 

 

13,853

 

 

 

14,692

 

 

 

17,041

 

Income tax expense (benefit)

 

 

2,797

 

 

 

(113

)

 

 

1,135

 

 

 

(1,972

)

Net income

 

 

14,536

 

 

 

13,966

 

 

 

13,557

 

 

 

19,013

 

Accretion of preferred membership interests

 

 

615

 

 

 

563

 

 

 

1,216

 

 

 

563

 

Net income available to limited partners

 

$

13,921

 

 

$

13,403

 

 

$

12,341

 

 

$

18,450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common unit

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.37

 

 

$

0.35

 

 

$

0.33

 

 

$

0.49

 

Diluted

 

$

0.36

 

 

$

0.35

 

 

$

0.32

 

 

$

0.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common units:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

37,952,950

 

 

 

37,912,710

 

 

 

37,946,676

 

 

 

37,906,463

 

Diluted

 

 

38,150,236

 

 

 

37,957,434

 

 

 

38,143,697

 

 

 

37,951,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

(a) includes excise taxes of:

 

$

76,191

 

 

$

71,601

 

 

$

146,075

 

 

$

138,460

 

(a) includes rent income of:

 

 

20,523

 

 

 

20,849

 

 

 

41,843

 

 

 

41,476

 

(b) excludes depreciation, amortization and accretion

 

 

 

 

 

 

 

 

 

 

 

 

(b) includes rent expense of:

 

 

5,658

 

 

 

5,945

 

 

 

11,212

 

 

 

11,786

 

(c) includes rent expense of:

 

 

3,911

 

 

 

3,801

 

 

 

7,709

 

 

 

7,509

 

 

The accompanying notes are an integral part of these consolidated financial statements.

2


 

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

13,557

 

 

$

19,013

 

Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:

 

 

 

 

 

 

Depreciation, amortization and accretion expense

 

 

39,118

 

 

 

40,194

 

Amortization of deferred financing costs

 

 

2,325

 

 

 

1,370

 

Credit loss expense

 

 

37

 

 

 

88

 

Deferred income tax benefit

 

 

582

 

 

 

(2,836

)

Equity-based employee and director compensation expense

 

 

1,123

 

 

 

954

 

(Gain) loss on dispositions and lease terminations, net

 

 

(4,933

)

 

 

302

 

Changes in operating assets and liabilities, net of acquisitions

 

 

(4,546

)

 

 

(4,426

)

Net cash provided by operating activities

 

 

47,263

 

 

 

54,659

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Principal payments received on notes receivable

 

 

107

 

 

 

66

 

Proceeds from sale of assets

 

 

4,533

 

 

 

3,793

 

Capital expenditures

 

 

(11,328

)

 

 

(16,403

)

Cash paid in connection with acquisitions, net of cash acquired

 

 

 

 

 

(1,885

)

Net cash used in investing activities

 

 

(6,688

)

 

 

(14,429

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

 

205,900

 

 

 

57,600

 

Repayments on revolving credit facilities

 

 

(50,546

)

 

 

(61,620

)

Borrowings under the Term Loan Facility

 

 

 

 

 

1,120

 

Repayments on the Term Loan Facility

 

 

(158,980

)

 

 

(24,600

)

Net proceeds from issuance of preferred membership interests

 

 

 

 

 

24,430

 

Payments of finance lease obligations

 

 

(1,417

)

 

 

(1,337

)

Payments of deferred financing costs

 

 

(7,022

)

 

 

(6

)

Distributions paid on distribution equivalent rights

 

 

(111

)

 

 

(93

)

Income tax distributions paid on preferred membership interests

 

 

(119

)

 

 

 

Distributions paid on common units

 

 

(39,843

)

 

 

(39,800

)

Net cash used in financing activities

 

 

(52,138

)

 

 

(44,306

)

Net decrease in cash and cash equivalents

 

 

(11,563

)

 

 

(4,076

)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

16,054

 

 

 

7,648

 

Cash and cash equivalents at end of period

 

$

4,491

 

 

$

3,572

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME

(Thousands of Dollars, except unit amounts)

(Unaudited)

 

 

 

Limited Partners' Interest
Common Unitholders

 

 

AOCI

 

 

Total Equity

 

 

 

Units

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

Balance at December 31, 2022

 

 

37,937,604

 

 

$

36,508

 

 

$

16,469

 

 

$

52,977

 

Net loss

 

 

 

 

 

(979

)

 

 

 

 

 

(979

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

   Unrealized gain on interest rate swap contracts

 

 

 

 

 

 

 

 

137

 

 

 

137

 

   Realized gain on interest rate swap contracts
      reclassified from AOCI into interest expense

 

 

 

 

 

 

 

 

(3,055

)

 

 

(3,055

)

Total other comprehensive loss

 

 

 

 

 

 

 

 

(2,918

)

 

 

(2,918

)

Comprehensive loss

 

 

 

 

 

(979

)

 

 

(2,918

)

 

 

(3,897

)

Issuance of units related to 2022 Bonus Plan

 

 

15,346

 

 

 

322

 

 

 

 

 

 

322

 

Accretion of preferred membership interests

 

 

 

 

 

(601

)

 

 

 

 

 

(601

)

Distributions paid

 

 

 

 

 

(19,974

)

 

 

 

 

 

(19,974

)

Balance at March 31, 2023

 

 

37,952,950

 

 

$

15,276

 

 

$

13,551

 

 

$

28,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

14,536

 

 

 

 

 

 

14,536

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

   Unrealized gain on interest rate swap contracts

 

 

 

 

 

 

 

 

9,898

 

 

 

9,898

 

   Realized gain on interest rate swap contracts
      reclassified from AOCI into interest expense