10-Q 1 caplq32016form10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10–Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016

OR
o
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
caplpa09.jpg

CROSSAMERICA PARTNERS LP
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
 
45-4165414
(I.R.S. Employer Identification No.)
515 Hamilton Street, Suite 200
Allentown, PA
(Address of Principal Executive Offices)
18101
(Zip Code)
(610) 625-8000
(Registrant’s telephone number, including area code)
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
(do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of November 4, 2016, there were 33,513,476 common units outstanding.



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, the
   Partnership, we, us, our
CrossAmerica Partners LP
LGW
Lehigh Gas Wholesale LLC
LGPR
LGP Realty Holdings LP
LGWS
Lehigh Gas Wholesale Services, Inc. and subsidiaries
 
 
CrossAmerica Partners LP related and affiliated parties:
CST
CST Brands, Inc.
DMS
Dunne Manning Stores LLC (formerly known as Lehigh Gas-Ohio, LLC), an entity associated with Joseph V. Topper, Jr., a member of the Board and a related party. DMS is an operator of retail motor fuel stations. DMS leases retail sites from us in accordance with a master lease agreement with us and DMS purchases substantially all of its motor fuel for these sites from us on a wholesale basis under rack plus pricing. The financial results of DMS are not consolidated with ours
General Partner
CrossAmerica GP LLC, the General Partner of CrossAmerica
CST Fuel Supply
CST Fuel Supply LP is the Parent of CST Marketing and Supply, CST’s wholesale motor fuel supply business, which provides wholesale fuel distribution to the majority of CST’s U.S. retail convenience stores on a fixed markup per gallon
Topstar
Topstar Enterprises, an entity associated with Joseph V. Topper, Jr. Topstar is an operator of convenience stores that leases retail sites from us, but does not purchase fuel from us
 
 
Recent Acquisitions:
PMI
Petroleum Marketers, Inc., acquired in April 2014
Erickson
Erickson Oil Products, Inc., acquired in February 2015
One Stop
M&J Operations, LLC, acquired in July 2015
Franchised Holiday
   Stores
The franchised Holiday stores acquired by CrossAmerica from S/S/G Corporation in March 2016
State Oil Assets
The assets acquired from State Oil Company in September 2016
 
 
Other Defined Terms:
 
Amended Omnibus
   Agreement
The Amended and Restated Omnibus Agreement, dated October 1, 2014, as amended on February 17, 2016 by and among CrossAmerica, the General Partner, Dunne Manning Inc., DMS, CST Services and Joseph V. Topper, Jr., which amends and restates the original omnibus agreement that was executed in connection with CrossAmerica’s initial public offering on October 30, 2012
ASU
Accounting Standards Update
the Board
Board of Directors of our General Partner
Couche-Tard
Alimentation Couche-Tard Inc.(TSX: ATD.A ATD.B)
DTW
Dealer tank wagon contracts, which are variable 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 and amortization, a non-GAAP financial measure
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
Form 10-K
CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, 2015
IDRs
Incentive Distribution Rights, which are partnership interests on the Partnership’s common units that provide for special distributions associated with increasing distributions. CST is the owner of 100% of the outstanding IDRs of CrossAmerica
Internal Revenue Code
Internal Revenue Code of 1986, as amended



IPO
Initial public offering of CrossAmerica Partners LP on October 30, 2012
LIBOR
London Interbank Offered Rate
Merger
The merger of Ultra Acquisition Corp. with CST, with CST surviving the merger as a wholly owned subsidiary of Circle K Stores Inc. See Merger Agreement below
Merger Agreement
CST’s Agreement and Plan of Merger (the “Merger Agreement”) entered into on August 21, 2016 with Circle K Stores Inc., a Texas corporation (“Parent”), and Ultra Acquisition Corp., a Delaware corporation and an indirect, wholly owned subsidiary of Parent (“Merger Sub”). Under and subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into CST, with CST surviving the Merger as a wholly owned subsidiary of Parent. Parent is a wholly owned subsidiary of Alimentation Couche-Tard Inc.
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations
NTI
CST’s new to industry stores opened after January 1, 2008, which is generally when CST began designing and operating its larger format stores that accommodate broader merchandise categories and food offerings and have more fuel dispensers than its legacy stores
Partnership Agreement
the First Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated as of October 1, 2014, as amended
Predecessor Entity
Wholesale distribution business of Lehigh Gas-Ohio, LLC and real property and leasehold interests contributed in connection with the IPO
SEC
U.S. Securities and Exchange Commission
U.S. GAAP
United States Generally Accepted Accounting Principles
Valero
Valero Energy Corporation and, where appropriate in context, one or more of its subsidiaries, or all of them taken as a whole




PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROSSAMERICA PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except unit data)
 
 
September 30,
 
December 31,
 
 
2016
 
2015
ASSETS
 
(Unaudited)
 
 
Current assets:
 
 
 
 
Cash
 
$
2,897

 
$
1,192

Accounts receivable, net of allowances of $545 and $1,090, respectively
 
22,483

 
21,953

Accounts receivable from related parties
 
13,284

 
11,003

Inventories
 
12,641

 
15,739

Assets held for sale
 
3,782

 
3,288

Other current assets, net
 
7,262

 
4,944

Total current assets
 
62,349

 
58,119

Property and equipment, net
 
677,730

 
628,564

Intangible assets, net
 
84,678

 
82,315

Goodwill
 
89,109

 
80,821

Other assets
 
20,080

 
11,625

Total assets
 
$
933,946

 
$
861,444

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of debt and capital lease obligations
 
$
2,852

 
$
8,342

Accounts payable
 
34,777

 
32,577

Accounts payable to related parties
 
8,312

 
8,350

Accrued expenses and other current liabilities
 
14,475

 
15,811

Motor fuel taxes payable
 
10,935

 
9,818

Total current liabilities
 
71,351

 
74,898

Debt and capital lease obligations, less current portion
 
505,976

 
430,632

Deferred tax liabilities
 
43,678

 
43,609

Asset retirement obligations
 
27,457

 
23,165

Other long-term liabilities
 
48,919

 
20,284

Total liabilities
 
697,381

 
592,588

Commitments and contingencies
 

 


Equity:
 
 
 
 
CrossAmerica Partners’ Capital
 
 
 
 
Common units—(33,402,652 and 25,585,922 units issued and outstanding at September 30, 2016 and December 31, 2015, respectively)
 
236,776

 
374,458

Subordinated units—affiliates (0 and 7,525,000 units issued and outstanding at September 30, 2016 and December 31, 2015, respectively)
 

 
(105,467
)
Total CrossAmerica Partners’ Capital
 
236,776

 
268,991

Noncontrolling interests
 
(211
)
 
(135
)
Total equity
 
236,565

 
268,856

Total liabilities and equity
 
$
933,946

 
$
861,444

See Condensed Notes to Consolidated Financial Statements.

5




CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, Except Unit and Per Unit Amounts)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Operating revenues(a)
$
487,950

 
$
627,802

 
$
1,368,334

 
$
1,758,395

Costs of sales(b)
448,812

 
576,833

 
1,251,491

 
1,628,528

Gross profit
39,138

 
50,969

 
116,843

 
129,867

 
 
 
 
 
 
 
 
Income from CST Fuel Supply equity interests
4,022

 
4,198

 
12,318

 
6,473

Operating expenses:
 
 
 
 
 
 
 
Operating expenses
14,224

 
20,370

 
45,754

 
57,781

General and administrative expenses
6,142

 
8,443

 
18,068

 
26,503

Depreciation, amortization and accretion expense
13,432

 
13,431

 
40,594

 
36,344

Total operating expenses
33,798

 
42,244

 
104,416

 
120,628

Gain on sales of assets, net
631

 
1,907

 
525

 
2,359

Operating income
9,993

 
14,830

 
25,270

 
18,071

Other income (expense), net
(59
)
 
87

 
375

 
336

Interest expense
(5,634
)
 
(4,867
)
 
(16,403
)
 
(13,888
)
Income before income taxes
4,300

 
10,050

 
9,242

 
4,519

Income tax expense (benefit)
1,308

 
(134
)
 
851

 
(2,722
)
Consolidated net income
2,992

 
10,184

 
8,391

 
7,241

Less: net income attributable to noncontrolling interests
3

 
21

 
9

 
14

Net income attributable to CrossAmerica limited
   partners
2,989

 
10,163

 
8,382

 
7,227

IDR distributions
(877
)
 
(428
)
 
(2,456
)
 
(793
)
Net income available to CrossAmerica limited
   partners
$
2,112

 
$
9,735

 
$
5,926

 
$
6,434

Net income per CrossAmerica limited partner unit:
 
 
 
 
 
 
Basic earnings per common unit
$
0.06

 
$
0.29

 
$
0.18

 
$
0.23

Diluted earnings per common unit
$
0.06

 
$
0.29

 
$
0.18

 
$
0.23

Basic and diluted earnings per subordinated unit
$

 
$
0.29

 
$
0.18

 
$
0.23

Weighted-average CrossAmerica limited partner units:
 
 
 
 
 
 
 
Basic common units
33,366,380

 
25,518,876

 
31,714,462

 
20,043,565

 
 
 
 
 
 
 
 
Diluted common units
33,391,096

 
25,568,795

 
31,766,802

 
20,137,338

Basic and diluted subordinated units

 
7,525,000

 
1,537,956

 
7,525,000

Total diluted common and subordinated units
33,391,096
 
33,093,795
 
33,304,758
 
27,662,338
 
 
 
 
 
 
 
 
Distribution paid per common and subordinated units
$
0.6025

 
$
0.5625

 
$
1.7925

 
$
1.6525

Distribution declared (with respect to each respective
period) per common and subordinated units
$
0.6075

 
$
0.5775

 
$
1.8075

 
$
1.6875

 
 
 
 
 
 
 
 
Supplemental information:
 
 
 
 
 
 
 
(a) Includes excise taxes of:
$
19,698

 
$
28,224

 
$
59,902

 
$
75,448

(a) Includes revenues from fuel sales to related parties of:
$
99,891

 
$
126,932

 
$
280,330

 
$
365,072

(a) Includes income from rentals of:
$
19,752

 
$
17,801

 
$
59,634

 
$
46,829

(b) Includes expenses from fuel sales to related parties of:
$
96,384

 
$
123,264

 
$
270,149

 
$
354,735

(b) Includes expenses from rentals of:
$
5,103

 
$
4,387

 
$
14,870

 
$
12,317

See Condensed Notes to Consolidated Financial Statements.

6




CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Consolidated net income
 
$
8,391

 
$
7,241

Adjustments to reconcile net income to net cash flows provided by operating activities:
 
 
 
 
Depreciation, amortization and accretion expense
 
40,594

 
36,344

Amortization of deferred financing fees
 
1,106

 
1,106

Amortization of below market leases, net
 
150

 
518

Provision for losses on doubtful accounts
 
93

 
462

Deferred income taxes
 
69

 
(5,156
)
Equity-based employees and directors compensation expense
 
2,597

 
3,840

Amended Omnibus Agreement fees: settled in common units
 
7,600

 
5,417

Gain on sales of assets, net
 
(525
)
 
(2,359
)
Gain on settlement of capital lease obligations
 

 
(25
)
Erickson working capital adjustment
 
335

 

Inventory valuation adjustment
 
91

 
1,356

Changes in working capital, net of acquisitions
 
3,197

 
156

Net cash provided by operating activities
 
63,698

 
48,900

Cash flows from investing activities:
 
 
 
 
Proceeds from sale of property and equipment
 
610

 
4,436

Capital expenditures
 
(11,567
)
 
(7,605
)
Principal payments received on notes receivable
 
215

 
1,931

Refund payment related to the sale by CST of California and Wyoming assets
 
17,528

 

Cash paid in connection with acquisitions, net of cash acquired
 
(94,174
)
 
(167,778
)
Cash paid to CST in connection with acquisitions
 
(2,900
)
 
(141,925
)
Net cash used in investing activities
 
(90,288
)
 
(310,941
)
Cash flows from financing activities:
 
 
 
 
Borrowings under the revolving credit facility
 
178,270

 
334,652

Repayments on the revolving credit facility
 
(82,182
)
 
(185,052
)
Proceeds from issuance of common units
 

 
144,873

Repurchases of common units
 
(3,252
)
 

Payments of long-term debt and capital lease obligations
 
(2,313
)
 
(1,964
)
Repayments from related party
 

 
2,465

IDR distributions
 
(2,456
)
 
(793
)
Distributions paid to noncontrolling interests
 
(85
)
 
(89
)
Distributions paid on common and subordinated units
 
(59,687
)
 
(45,361
)
Net cash provided by financing activities
 
28,295

 
248,731

Net increase (decrease) in cash
 
1,705

 
(13,310
)
Cash at beginning of period
 
1,192

 
15,170

Cash at end of period
 
$
2,897

 
$
1,860

See Condensed Notes to Consolidated Financial Statements.

7



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.    DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES
CST’s Merger Agreement
Under the terms of the Merger Agreement, Circle K Stores Inc. will, through its acquisition of CST, control CST’s interest in the General Partner and CST’s 19.6% limited partner interest in CrossAmerica as well as all of the IDRs. The transaction is subject to the approval of CST’s stockholders on November 16, 2016 and the receipt of regulatory approvals in the United States and Canada. The transaction is currently expected to close early calendar year 2017.
Description of Business
Our business consists of:
the wholesale distribution of motor fuels;
the retail distribution of motor fuels to end customers at sites operated by commission agents or us;
the owning or leasing of sites used in the retail distribution of motor fuels and, in turn, generating rental income from the lease or sublease of the sites; and
the operation of convenience stores.
The financial statements reflect the consolidated results of the Partnership and its wholly owned subsidiaries. Our primary operations are conducted by the following consolidated wholly owned subsidiaries:
LGW, which distributes motor fuels on a wholesale basis and generates qualified income under Section 7704(d) of the Internal Revenue Code;
LGPR, which functions as our real estate holding company and holds the assets that generate rental income that is qualifying under Section 7704(d) of the Internal Revenue Code; and
LGWS, which owns and leases (or leases and sub-leases) real estate and personal property used in the retail distribution of motor fuels, as well as provides maintenance and other services to its customers. In addition, LGWS distributes motor fuels on a retail basis and sells convenience merchandise items to end customers at company-operated retail sites and sells motor fuel on a retail basis at sites operated by commission agents. Income from LGWS generally is not qualifying income under Section 7704(d) of the Internal Revenue Code.
CST owns 100% of the membership interest in the General Partner of the Partnership and 100% of our IDRs. The General Partner manages our operations and business activities. The General Partner is managed and operated by the executive officers of the General Partner, under the oversight of the Board. As a result of its ownership of all of the membership interests in the General Partner, CST has the right to appoint all members of the Board and therefore controls our operations even though CST does not own a majority of our common units.
As part of our business strategy with CST, we intend, when favorable market conditions exist and pending approval by the General Partner’s independent conflicts committee and the approval of the executive committee of the Board of Directors of CST and mutual agreement upon terms and other conditions, to purchase equity interests at fair market value in CST Fuel Supply, over time. As of September 30, 2016, our total equity interest in CST Fuel Supply was 17.5%. See Note 10 for discussion of the July 2016 refund of a portion of the purchase price paid in 2015 by the Partnership to CST Fuel Supply associated with the reduction in wholesale distribution volume resulting from CST’s sale of its California and Wyoming assets.
Additionally, we have previously issued common units as consideration in the purchase of equity interests in CST Fuel Supply and the real property associated with some of CST’s NTI convenience stores. We have previously issued, and may continue to issue, common units as payment for charges incurred under the Amended Omnibus Agreement. Pursuant to a unit purchase program announced in September 2015, CST has also acquired our common units through open market purchases. Through September 30, 2016, after giving effect to these transactions, CST owned 19.6% of our limited partner interests.
Interim Financial Statements
These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and the Exchange Act. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments

8



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 included in the consolidated financial statements has been derived from our unaudited financial statements. Financial information as of December 31, 2015 has been derived from our audited financial statements and notes thereto as of that date.
Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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.
Reclassifications
Certain reclassifications were made to prior year amounts to conform to the current year presentation, as discussed further in Note 16. Such reclassifications had no effect on net income or total equity.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results and outcomes could differ from those estimates and assumptions. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.
Significant Accounting Policies
There have been no material changes to the significant accounting policies described in our Form 10-K.
New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842). This standard modifies existing guidance for reporting organizations that enter into leases to increase transparency by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and requires a modified retrospective approach to adoption. Early adoption is permitted. Management is currently evaluating the impact of this new guidance in addition to the timing of adoption.
In March 2016, the FASB issued ASU 2016-09—Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard is issued as part of a simplification initiative involving several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The approach to adoption is dependent upon which amendments are applicable. Early adoption is permitted. Management is currently evaluating the impact of this new guidance in addition to the timing of adoption.
In August 2016, the FASB issued ASU 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard provides additional guidance on the classification of eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and requires a modified retrospective approach to adoption. Management is currently evaluating the impact of this new guidance in addition to the timing of adoption.
Certain other new financial accounting pronouncements have become effective for our financial statements but the adoption of these pronouncements will not affect our financial position or results of operations, nor will they require any additional disclosures.
Concentration Risk
For the three and nine months ended September 30, 2016, we distributed approximately 16% and 17% of our total wholesale distribution volumes to DMS and DMS accounted for approximately 25% and 27% of our rental income, respectively. For more information regarding transactions with DMS, see Note 10 of the Condensed Notes to Consolidated Financial Statements.

9



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Valero supplied substantially all of the motor fuel purchased by CST Fuel Supply during all periods presented. During the three and nine months ended September 30, 2016, CST Fuel Supply purchased approximately 0.5 billion and 1.4 billion gallons, respectively, of motor fuel from Valero.
For the three and nine months ended September 30, 2016, we distributed 8% of our total wholesale distribution volume to CST convenience stores that are not supplied by CST Fuel Supply and received 21% and 22% of our rental income from CST, respectively.
For the three months ended September 30, 2016, we received 10% of our rental income from a third party dealer that operates certain of the sites acquired through the PMI and One Stop acquisitions.
Note 2. ACQUISITIONS
Acquisition of State Oil Assets
On September 27, 2016, we closed on the acquisition of 57 controlled sites (56 fee sites and 1 leased site) and certain other assets of State Oil Company, being operated as 55 lessee dealer accounts and 2 non-fuel tenant locations, as well as 25 independent dealer accounts located in the greater Chicago market for approximately $41.8 million, including working capital.
The preliminary fair value of the assets acquired and liabilities assumed on the date of acquisition were as follows (in thousands):
Current assets (excluding inventories)
$
914

Inventories
150

Property and equipment
35,291

Intangibles
6,530

Other noncurrent assets
2,720

Current liabilities
(1,261
)
Asset retirement obligations
(1,897
)
Other long-term liabilities
(623
)
   Total consideration, net of cash acquired
$
41,824

The $3.4 million fair value of the notes receivable, which is included within current and other noncurrent assets, was based on an income approach using relevant market participant assumptions.
The fair value of property and equipment, which consisted of land, 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 5 to 10 years for equipment.
The $4.9 million fair value of the wholesale fuel distribution rights included in intangibles was based on an income approach and management believes the level and timing of cash flows represent relevant market participant assumptions. The wholesale fuel distribution rights are being amortized on a straight-line basis over an estimated useful life of approximately 10 years.
The $1.6 million fair value of the wholesale fuel supply agreements was based on an income approach, and management believes the level and timing of cash flows represent relevant market participant assumptions. The wholesale fuel supply agreements are being amortized over an estimated useful life of approximately 10 years.
Management is reviewing the valuation and confirming the result to determine the final purchase price allocation.
Acquisition of Franchised Holiday Stores
On March 29, 2016, we closed on the acquisition of 31 franchised Holiday stores and 3 liquor stores from S/S/G Corporation for approximately $52.4 million, including working capital. Of the 34 stores, 31 are located in Wisconsin and 3 are located in Minnesota. The acquisition was funded by borrowings under our credit facility.

10



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The preliminary fair value of the assets acquired and liabilities assumed on the date of acquisition were as follows (in thousands):
Current assets (excluding inventories)
$
41

Inventories
3,536

Property and equipment
33,055

Intangibles
7,710

Goodwill
9,126

Current liabilities
(56
)
Asset retirement obligations
(1,062
)
   Total consideration, net of cash acquired
$
52,350

The fair value of inventory was estimated at retail selling price less estimated costs to sell and a reasonable profit allowance for the selling effort.
The fair value of property and equipment, which consisted of land, 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 5 to 10 years for equipment.
The $6.5 million fair value of the wholesale fuel distribution rights included in intangibles was based on an income approach and management believes the level and timing of cash flows represent relevant market participant assumptions. The wholesale fuel distribution rights are being amortized on a straight-line basis over an estimated useful life of approximately 10 years.
The $1.0 million fair value of the discount related to lease agreements with below average market value was based on an income approach, and management believes the level and timing of cash flows represent relevant market participant assumptions. These intangible assets are being amortized on a straight-line basis over the term of the respective lease agreements, with an estimated weighted average useful life of 5 years.
Goodwill recorded is primarily attributable to the end-customer relationships not eligible for recognition as an intangible asset. Of the goodwill recorded, $1.8 million was assigned to the Wholesale segment and $7.3 million was assigned to the Retail segment. Goodwill deductible for tax purposes amounted to $29.0 million.
Operating revenues since the date of acquisition were $28.8 million and $57.5 million for the three and nine months ended September 30, 2016, respectively.
Management is reviewing the valuation and confirming the result to determine the final purchase price allocation.
Finalization of Purchase Accounting associated with the Erickson Acquisition
In the first quarter of 2016, we recorded a $1.1 million receivable related to a working capital settlement as agreed to with the sellers, reducing net consideration and resulting goodwill. We finalized the purchase accounting for this acquisition with the receivable related to the working capital settlement being the only adjustment recorded in 2016.
Purchase of Wholesale Fuel Supply Contracts from CST
In February 2016, we purchased 21 independent dealer contracts and 11 subwholesaler contracts from CST for $2.9 million. This transaction was approved on behalf of the Partnership by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST. See Note 10 of the Condensed Notes to Consolidated Financial Statements for additional information.

11



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Results
Our pro forma results, giving effect to the State Oil, Franchised Holiday Stores, Erickson and One Stop acquisitions and assuming an acquisition date of January 1, 2015 for each acquisition, would have been (in thousands, except per unit amounts):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Total revenues
 
$
522,651

 
$
691,994

 
$
1,494,733

 
$
2,077,333

Net income (loss)
 
$
1,948

 
$
9,191

 
$
4,884

 
$
3,512

Net income (loss) per limited partnership unit
 
$
0.03

 
$
0.26

 
$
0.07

 
$
0.10

Note 3. ASSETS HELD FOR SALE
We have classified four and seven sites as held for sale at September 30, 2016 and December 31, 2015, respectively. Assets held for sale were as follows (in thousands):
 
 
September 30,
 
December 31,
 
 
2016
 
2015
Land
 
$
1,747

 
$
1,695

Buildings and site improvements
 
2,022

 
1,558

Equipment and other
 
668

 
1,225

Total
 
4,437

 
4,478

Less accumulated depreciation
 
(655
)
 
(1,190
)
Assets held for sale
 
$
3,782

 
$
3,288

Note 4. INVENTORIES
Inventories consisted of the following (in thousands):
 
 
September 30,
 
December 31,
 
 
2016
 
2015
Convenience store merchandise
 
$
8,968

 
$
11,354

Motor fuel
 
3,673

 
4,385

Inventories
 
$
12,641

 
$
15,739

Note 5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
 
 
September 30,
 
December 31,
 
 
2016
 
2015
Land
 
$
276,251

 
$
251,632

Buildings and site improvements
 
342,475

 
318,530

Leasehold improvements
 
10,116

 
8,867

Equipment and other
 
167,307

 
140,264

Construction in progress
 
3,367

 
3,666

Property and equipment, at cost
 
799,516

 
722,959

Accumulated depreciation and amortization
 
(121,786
)
 
(94,395
)
Property and equipment, net
 
$
677,730

 
$
628,564


12




Note 6. GOODWILL
Changes in goodwill during the nine months ended September 30, 2016 consisted of the following (in thousands):
 
Wholesale
Segment
 
Retail 
Segment 
 
Consolidated
Balance at December 31, 2015
$
61,548

 
$
19,273

 
$
80,821

Acquisitions
1,720

 
6,568

 
8,288

Reassignment
5,341

 
(5,341
)
 

Balance at September 30, 2016
$
68,609

 
$
20,500

 
$
89,109

Our business model includes the conversion of retail sites from company-operated sites to dealer-operated sites. As a result of these conversions, there is a reduction in future cash flows in the Retail segment and an expected increase in future cash flows that will be received by the Wholesale segment subsequent to the date of conversion. The effect of these conversions, for the period ended September 30, 2016, is a $5.3 million reassignment of goodwill originally assigned to the Retail segment to the Wholesale segment.
Note 7. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
 
 
September 30, 2016
 
December 31, 2015
 
 
Gross Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Amount
 
Accumulated Amortization
 
Net Carrying Amount
Wholesale fuel supply contracts/rights
 
$
118,201

 
$
(41,212
)
 
$
76,989

 
$
105,181

 
$
(32,498
)
 
$
72,683

Trademarks
 
1,094

 
(645
)
 
449

 
2,494

 
(1,264
)
 
1,230

Covenant not to compete
 
4,131

 
(2,274
)
 
1,857

 
3,911

 
(1,600
)
 
2,311

Below market leases
 
12,081

 
(6,698
)
 
5,383

 
11,181

 
(5,090
)
 
6,091

Total intangible assets
 
$
135,507

 
$
(50,829
)
 
$
84,678

 
$
122,767

 
$
(40,452
)
 
$
82,315

Note 8. ASSET RETIREMENT OBLIGATIONS
A rollforward of the Partnership's asset retirement obligations is below (in thousands):
Balance at December 31, 2015
 
$
23,484

Recognition of asset retirement obligations
 
2,959

Changes in estimated cash flows or settlement dates
 
126

Accretion
 
1,039

Obligations settled
 
(46
)
Total balance
 
27,562

Current portion, classified within accrued expenses and other current liabilities
 
105

Long-term portion
 
$
27,457



13



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. DEBT
Our balances for long-term debt and capital lease obligations are as follows (in thousands):
 
 
September 30,
 
December 31,
 
 
2016
 
2015
$550 million revolving credit facility
 
$
454,500

 
$
358,412

Financing obligation associated with Rocky Top acquisition
 

 
26,250

Note payable
 
836

 
876

Lease financing obligations
 
57,792

 
58,842

Total debt and lease financing obligations
 
513,128

 
444,380

Current portion
 
2,852

 
8,342

Noncurrent portion
 
510,276

 
436,038

Deferred financing fees
 
(4,300
)
 
(5,406
)
Total
 
$
505,976

 
$
430,632

The following represents principal payments due on our revolving credit facility and note payable for the next five years, excluding lease financing obligations (in thousands):
Remainder of 2016
 
$
14

2017
 
57

2018
 
765

2019
 
454,500

Total
 
$
455,336

Our $550 million revolving credit facility is secured by substantially all of our assets. Letters of credit outstanding at September 30, 2016 and December 31, 2015 totaled $4.3 million and $16.0 million, respectively. The amount of availability at September 30, 2016 under the revolving credit facility, after taking into account debt covenant constraints, was $57.0 million. In connection with future acquisitions, the revolving credit facility requires, among other things, that we have, after giving effect to such acquisition, at least $20.0 million, in the aggregate, of borrowing availability under the revolving credit facility and unrestricted cash on the balance sheet on the date of such acquisition.
Renegotiation of Rocky Top Purchase Obligation
In connection with the Rocky Top acquisition completed in September 2013, we entered into a deferred seller financing arrangement, which obligated us to purchase certain sites over a 5-year period for an average of $5.2 million per year beginning in 2016 at an approximately 7.7% capitalization rate. In June 2016, we renegotiated the terms with the sellers, eliminating the deferred seller financing obligation and agreeing to terms of a new lease of the assets for an initial term of 15 years and 8 months with four renewal options of five years each. Under this triple net lease, annual rent is initially $1.8 million based on a 6.5% capitalization rate and increases 1.5% per year. However, because of the continuing involvement we have with the sites through the lease and sublease of the properties, we recorded the liability on our balance sheet at fair value on the date of the reclassification, which approximated its carrying value. During the second quarter of 2016, we reclassified the liability from debt and capital lease obligations to accrued expenses and other current liabilities and other noncurrent liabilities on the consolidated balance sheet.
Financial Covenants and Interest Rate
Our revolving credit facility contains financial covenants consisting of a total leverage ratio (as defined in the credit facility) for the most recently completed four fiscal quarters of less than or equal to 5.00 to 1.00 and a consolidated interest coverage ratio (as defined in the credit facility) of greater than or equal to 2.75 to 1.00. As of September 30, 2016, we were in compliance with these covenants. The total leverage ratio covenant is 5.00 to 1.00 for the two quarters following a material acquisition (as defined in the credit facility). As such, the total leverage ratio steps down to 4.50 to 1.00 on December 31, 2016 assuming there are no material acquisitions for the remainder of 2016.
Outstanding borrowings under the revolving credit facility bear interest at the LIBOR plus a margin of 3.00%. Our borrowings had an interest rate of 3.52% as of September 30, 2016.

14



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. RELATED-PARTY TRANSACTIONS
Transactions with CST
Fuel Sales and Rental Income
We sell wholesale motor fuel under a master fuel distribution agreement to 43 CST convenience stores and lease real property on 74 retail sites to CST under a master lease agreement each having initial 10-year terms. The fuel distribution agreement provides us with a fixed wholesale mark-up per gallon. The master lease agreement is a triple net lease.
Revenues from wholesale fuel sales and real property rental income from CST were as follows (in thousands):
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues from motor fuel sales to CST
 
$
31,738

 
$
37,242

 
$
87,819

 
$
106,916

Rental income from CST
 
$
4,207

 
$
4,317

 
$
12,841

 
$
7,104

Receivables from CST were $3.0 million and $2.3 million at September 30, 2016 and December 31, 2015, respectively, related to these transactions.
CST Fuel Supply Equity Interests
CST Fuel Supply provides wholesale motor fuel distribution to the majority of CST’s U.S. Retail convenience stores on a fixed markup per gallon. We owned a 17.5% total interest in CST Fuel Supply at September 30, 2016 and 2015. We account for the income derived from our equity interest of CST Fuel Supply as “Income from CST Fuel Supply equity” on our statement of operations, which amounted to $4.0 million and $4.2 million for the three months ended September 30, 2016 and 2015 and $12.3 million and $6.5 million for the nine months ended September 30, 2016 and 2015, respectively.
Purchase of Wholesale Fuel Supply Contracts from CST
In February 2016, we purchased 21 independent dealer contracts and 11 subwholesaler contracts from CST for $2.9 million with historic annual volumes of approximately 20 million gallons. This transaction was approved on our behalf by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST. Since this was a transaction between entities under common control, the $2.9 million purchase price was accounted for as a distribution recorded in partners’ capital.
We purchase the fuel supplied to these 32 sites from CST Fuel Supply, of which we own a 17.5% interest, and resell the wholesale motor fuel to the independent dealers and subwholesalers. We purchased $5.7 million and $14.7 million of motor fuel from CST Fuel Supply for the three and nine months ended September 30, 2016, respectively, in connection with these 32 sites.
Refund payment related to CST sale of California and Wyoming Assets
In July 2016, CST provided a refund payment to us related to our 17.5% interest in CST Fuel Supply resulting from the sale by CST of 79 retail sites in California and Wyoming to 7-Eleven, Inc. and its wholly-owned subsidiary, SEI Fuel Services, Inc., to which CST Fuel Supply no longer supplies motor fuel. The purpose of the refund payment was to make us whole for the decrease in the value of our interest in CST Fuel Supply arising from sales volume decreases. The total refund payment received by the Partnership, as approved by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST, was approximately $18.2 million ($17.5 million in cash with the remainder in CrossAmerica common units owned by CST) and was accounted for as a contribution to equity.
IDR and Common Unit Distributions
We distributed $2.5 million to CST related to its ownership of our IDRs and $11.5 million related to its ownership of our common units during the nine months ended September 30, 2016. CST received cash distributions of $0.8 million related to its investment in our IDRs and $4.6 million related to its ownership of our common units during the nine months ended September 30, 2015.

15



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Wholesale Motor Fuel Sales and Real Estate Rentals
Revenues from motor fuel sales and rental income from DMS were as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues from motor fuel sales to DMS
 
$
68,153

 
$
89,690

 
$
192,511

 
$
258,156

Rental income from DMS
 
$
5,037

 
$
5,831

 
$
16,250

 
$
17,488

Receivables from DMS totaled $9.0 million and $7.3 million at September 30, 2016 and December 31, 2015, respectively.
Revenues from rental income from Topstar was $0.2 million and $0.1 million for the three months ended September 30, 2016 and 2015, and $0.4 million and $0.3 million for the nine months ended September 30, 2016 and 2015, respectively.
We lease real estate from certain entities affiliated with Joseph V. Topper, Jr. Rent expense paid to these entities was $0.2 million for the three months ended September 30, 2016 and 2015 and $0.6 million and $0.7 million for the nine months ended September 30, 2016 and 2015, respectively.
Amended Omnibus Agreement and Management Fees
We incurred $3.9 million and $3.6 million in charges for the three months ended September 30, 2016 and 2015 and $12.1 million and $10.7 million for the nine months ended September 30, 2016 and 2015, respectively, including incentive compensation costs and non-cash stock-based compensation expense under the Amended Omnibus Agreement, which are recorded as a component of operating expenses and general and administrative expenses in the statement of operations. Effective January 1, 2016, the fixed billing component of the management fee under the Amended Omnibus Agreement was increased to $856,000 per month, which was approved on our behalf by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST. CST and the Partnership have the right to negotiate the amount of the management fee on an annual basis, or more often as circumstances require. Amounts payable to CST related to these transactions were $8.3 million at September 30, 2016 and December 31, 2015. See Note 13 of the Condensed Notes to Consolidated Financial Statements for additional information on the settlement of amounts due under the Amended Omnibus Agreement that were settled in our common units.
Maintenance and Environmental Costs
Certain maintenance and environmental monitoring and remediation activities are performed by a related party of Joseph V. Topper, Jr. as approved by the independent conflicts committee of the Board. We incurred charges with this related party of $0.3 million and $0.4 million for the three months ended September 30, 2016 and 2015 and $1.2 million and $1.1 million in charges with this related party for the nine months ended September 30, 2016 and 2015, respectively.
Aircraft Usage Costs
From time to time, we lease, on a non-exclusive basis, aircraft owned by a group of individuals that includes Joseph V. Topper, Jr. and John B. Reilly, III, members of our Board, as previously approved in August 2013 by the independent conflicts committee of the Board. Lease costs incurred by us for use of these aircraft were insignificant for the three and nine months ended September 30, 2016 and 2015.
Principal Executive Offices
The principal executive offices of the Partnership are in Allentown, Pennsylvania in an office space leased by CST from a related party of Joseph V. Topper, Jr. and John B. Reilly, III. Rent expense charged by CST to the Partnership was $0.2 million and $0.1 million for the three months ended September 30, 2016 and 2015 and $0.4 million and $0.2 million for the nine months ended September 30, 2016 and 2015, respectively.
Note 11. COMMITMENTS AND CONTINGENCIES
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 and/or property damages, environmental damages, employment-related claims and damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record a reserve when it is probable

16



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 of these proceedings, separately or in the aggregate, are expected to 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.

We are a co-defendant, together with our General Partner, CST and CST Services LLC, in a lawsuit brought by Charles Nifong, a former employee of CST Services LLC who previously provided services to the Partnership as Chief Investment Officer and Vice President of Finance (Court of Common Pleas,  Lehigh County, Pennsylvania, case number 2015-1003). On February 16, 2016 the United States District Court Eastern District of Pennsylvania (Allentown) remanded the case to the Court of Common Pleas, Lehigh County. The plaintiff alleges breach of contract and associated claims relating to his termination of employment and claimed severance benefits under the Partnership’s Executive Income Continuity Plan (the “EICP”) totaling approximately $1.6 million.  We intend to contest the action vigorously. Under the EICP, we are obligated to pay reasonable legal expenses incurred by the plaintiff in connection with this dispute whether we are successful in our defense or not.
Environmental Matters
Environmental liabilities related to the sites contributed to the Partnership in connection with our IPO have not been assigned to us, and are still the responsibility of the Predecessor Entity. Under the Amended Omnibus Agreement, the Predecessor Entity must indemnify us for any costs or expenses that it incurs for environmental liabilities and third-party claims, regardless of when a claim is made, that are based on environmental conditions in existence prior to the closing of the IPO for contributed sites. The Predecessor Entity’s environmental liabilities and indemnification assets associated with contributed sites amounted to $6.5 million and $4.8 million at September 30, 2016 and $7.0 million and $5.0 million at December 31, 2015, respectively.
Note 12. FAIR VALUE MEASUREMENTS
General
We measure and report certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). U.S. GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Active markets are considered to be those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2—Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets.
Level 3—Unobservable inputs are not corroborated by market data. This category is comprised of financial and non-financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies using significant inputs that are generally less readily observable from objective sources.
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels in 2016 or 2015.
As further discussed in Note 14 of the Condensed Notes to Consolidated Financial Statements, we have accrued for unvested phantom units and vested and unvested profits interests as a liability and adjust that liability on a recurring basis based on the market price of our common units each balance sheet date. Such fair value measurements are deemed Level 1 measurements.
Financial Instruments
The fair value of our accounts receivable, notes receivable, and accounts payable approximated their carrying values as of September 30, 2016 and December 31, 2015 due to the short-term maturity of these instruments. The fair value of the revolving credit facility approximated its carrying values of $454.5 million as of September 30, 2016 and $358.4 million as of December 31,

17



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2015, due to the frequency with which interest rates are reset and the consistency of the market spread. The fair value of debt, classified as a Level 2 measurement, was estimated using an income approach by discounting future cash flows at estimated current cost of funding rates.
Note 13. PARTNERS’ CAPITAL
In accordance with the terms of the Partnership Agreement, on February 25, 2016, the first business day after the payment of the fourth quarter of 2015 distribution of $0.5925 per unit, the subordination period under the Partnership Agreement ended. At that time, each of the 7,525,000 outstanding subordinated units converted into one common unit and now participate in distributions pro rata with other common units.
For the three and nine months ended September 30, 2016, we issued 1,150 and 95,751 common units (net of units withheld for income taxes) as a result of the vesting of phantom units and conversion of profit interests previously issued primarily to CST employees who provide services principally to the Partnership. See Note 14 of the Condensed Notes to Consolidated Financial Statements for additional information.
Common Units Issued to CST as Consideration for Amounts Due Under the Terms of the Amended Omnibus Agreement
As approved by the independent conflicts committee of the Board and the executive committee of CST’s board of directors, the Partnership and CST mutually agreed to settle, from time to time, the amounts due under the terms of the Amended Omnibus Agreement in newly issued common units representing limited partner interests in the Partnership. We issued the following common units to CST as consideration for amounts due under the terms of the Amended Omnibus Agreement:
Period
 
Date of Issuance
 
Number of Units Issued
Quarter ended December 31, 2015
 
March 31, 2016
 
145,137

Quarter ended March 31, 2016
 
May 9, 2016
 
83,218

Quarter ended June 30, 2016
 
August 2, 2016
 
101,087

Quarter ended September 30, 2016
 
October 27, 2016
 
110,824

Common Unit Repurchase Program
In November 2015, the Board approved a common unit repurchase program under Rule 10b-18 of the Exchange Act authorizing us to repurchase up to an aggregate of $25.0 million of the common units representing limited partner interests in the Partnership. Under the program, we may make purchases in the open market in accordance with Rule 10b-18 of the Exchange Act, or in privately negotiated transactions, pursuant to a trading plan under Rule 10b5-1 of the Exchange Act or otherwise. Any purchases will be funded from available cash on hand. The common unit repurchase program does not require us to acquire any specific number of common units and may be suspended or terminated by us at any time without prior notice. The purchases will not be made from any officer, director or control person of the Partnership or CST. The following table shows the purchases during the nine months ended September 30, 2016:
Period
 
Total Number of Units Purchased
 
Average Price Paid per Unit
 
Total Cost of Units Purchased
 
Amount Remaining under the Program
January 1 - March 31, 2016
 
112,492

 
$
24.47

 
$
2,752,240

 
$
18,644,689

April 1 - June 30, 2016
 
20,971

 
$
23.86

 
$
500,413

 
$
18,144,276

July 1 - September 30, 2016
 

 
$

 
$

 
$
18,144,276

January 1 - September 30, 2016
 
133,463

 
$
24.37

 
$
3,252,653

 
$
18,144,276

CST Purchases of CrossAmerica Common Units
On September 21, 2015, CST announced that the independent executive committee of its Board of Directors approved a unit purchase program under Rule 10b-18 of the Exchange Act, authorizing CST to purchase up to an aggregate of $50 million of the common units representing limited partner interests in CrossAmerica. The unit purchase program does not have a fixed expiration date and may be modified, suspended or terminated at any time at CST’s discretion.
CST made no purchases under the unit purchase program during the nine months ended September 30, 2016. From inception until September 30, 2016, CST had purchased $19.8 million, or 804,667 common units, at an average price of $24.64 per common unit,

18



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

which units cannot be transferred absent registration with the SEC or an available exemption from the SEC’s registration requirements.
Distributions
Quarterly distribution activity for 2016 was as follows:
Quarter Ended
 
Record Date
 
Payment Date
 
Cash Distribution (per unit)
 
Cash Distribution (in thousands)
December 31, 2015
 
February 12, 2016
 
February 24, 2016
 
$
0.5925

 
$
19,618

March 31, 2016
 
May 19, 2016
 
May 31, 2016
 
$
0.5975

 
$
19,910

June 30, 2016
 
August 8, 2016
 
August 15, 2016
 
$
0.6025

 
$
20,125

On October 24, 2016, the Board approved a quarterly distribution of $0.6075 per unit attributable to the third quarter of 2016. The distribution is payable on November 15, 2016 to all unitholders of record on November 4, 2016.
Distributions to CST as holder of the IDRs were $0.9 million and $2.5 million for the three and nine months ended September 30, 2016, respectively and $0.4 million and $0.8 million for the three and nine months ended September 30, 2015. Payments on the IDRs increased due to an increase in the distribution paid per unit and an increase in the number of units outstanding on which the distribution is based.
Changes in Equity
The following table is a rollforward of our equity for the nine months ended September 30, 2016 (in thousands):
 
 
Limited Partners’ Interest
 
 
 
 
 
 
 
 
Common
Unitholders
 
Subordinated
Units - Affiliates
 
Incentive
Distribution
Rights
 
Noncontrolling
Interest
 
Total Equity
 
 
Units
 
Dollars
 
Units
 
Dollars
 
Dollars
 
Dollars
 
Dollars
Balance at December 31, 2015
 
25,585

 
$
374,458

 
7,525

 
$
(105,467
)
 
$

 
$
(135
)
 
$
268,856

Net income and comprehensive income
 

 
5,652

 

 
274

 
2,456

 
9

 
8,391

Distributions paid
 

 
(55,228
)
 

 
(4,459
)
 
(2,456
)
 
(85
)
 
(62,228
)
Conversion of subordinated units
 
7,525

 
(109,652
)
 
(7,525
)
 
109,652

 

 

 

Distribution to CST in connection with the
   purchase of dealer contracts
 

 
(2,900
)
 

 

 

 

 
(2,900
)
Repurchase of common units
 
(133
)
 
(3,252
)
 

 

 

 

 
(3,252
)
Issuance of units to CST for the payment
   of management fees
 
358

 
8,290

 

 

 

 

 
8,290

Issuance of units for vesting of equity
   based award and profits interests
 
96

 
2,309

 

 

 

 

 
2,309

Refund payment related to the CST sale of
   California and Wyoming assets
 
(28
)
 
17,528

 

 

 

 

 
17,528

Other
 

 
(429
)
 

 

 

 

 
(429
)
Balance at September 30, 2016
 
33,403

 
$
236,776

 

 
$

 
$

 
$
(211
)
 
$
236,565

Note 14. EQUITY-BASED COMPENSATION
Overview
We record equity-based compensation as a component of general and administrative expenses in the statement of operations. Compensation expense was $0.7 million and $0.4 million for the three months ended September 30, 2016 and 2015, and $2.6 million and $3.8 million for the nine months ended September 30, 2016 and 2015, respectively.
Partnership Equity-Based Awards
We grant Partnership equity-based awards to certain employees of CST who perform services for the Partnership pursuant to the Amended Omnibus Agreement. As these grants may be settled in cash, the equity-based awards receive fair value variable accounting treatment. As such, they are measured at fair value at each balance sheet reporting date and the cumulative compensation

19



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

cost recognized is classified as a liability, which is included in accrued expenses and other current liabilities on the consolidated balance sheet. The balance of the accrual at September 30, 2016 and December 31, 2015 totaled $1.5 million and $3.3 million, respectively.
CST Awards
In addition to Partnership equity-based awards previously discussed, CST also granted equity-based awards of approximately 102,000 and 155,000 for the nine months ended September 30, 2016 and 2015, respectively, which were granted to certain employees of CST for services rendered on behalf of the Partnership. Expense associated with these awards that was charged to us under the Amended Omnibus Agreement was $0.3 million and $0.3 million for the three months ended September 30, 2016 and 2015 and $1.3 million and $2.0 million for the nine months ended September 30, 2016 and 2015, respectively.
Awards to Members of the Board
In December 2015, the Partnership issued 11,476 non-vested phantom units to non-employee directors of the Board as a portion of director compensation. Such awards vest in December 2016.
The liability for these awards at September 30, 2016 and December 31, 2015 was $0.3 million and $0.4 million, respectively. The associated compensation expense was not significant for the three and nine months ended September 30, 2016 and 2015.
Note 15. NET INCOME PER LIMITED PARTNER UNIT
A subsidiary of CST, as the holder of our IDRs, has a contractual interest in distributions from the Partnership that are increasing percentages starting at 15% of quarterly distributions out of the operating surplus (as defined in our Partnership Agreement) in excess of $0.5031 per limited partner unit.
In addition to the common units, we have identified the IDRs as participating securities and 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 (including common and subordinated unitholders) is computed by dividing the limited partners’ interest in net income (loss), after deducting the IDRs, by the weighted-average number of outstanding common units.

20



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables provide a reconciliation of net income (loss) and weighted-average units used in computing basic and diluted net income (loss) per limited partner unit for the following periods (in thousands, except unit and per unit amounts):
 
 
Three Months Ended September 30,
 
 
2016
 
2015
 
 
Common Units
 
Subordinated Units
 
Common Units
 
Subordinated Units
Numerator:
 
 
 
 
 
 
 
 
Distributions paid(a)
 
$
20,135

 
$

 
$
14,414

 
$
4,233

Allocation of distributions in excess of net income(b)
 
(18,024
)
 

 
(6,896
)
 
(2,016
)
Limited partners’ interest in net income - basic
 
2,111

 

 
7,518

 
2,217

Adjustment for phantom units
 

 

 
6

 

Limited partners’ interest in net income - diluted
 
$
2,111

 
$

 
$
7,524

 
$
2,217

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted average limited partnership units outstanding - basic
 
33,366,380

 

 
25,518,876

 
7,525,000

Adjustment for phantom units
 
24,716

 

 
49,919

 

Weighted average limited partnership units outstanding - diluted
 
33,391,096

 

 
25,568,795

 
7,525,000

 
 
 
 
 
 
 
 
 
Net income (loss) per limited partnership unit - basic
 
$
0.06

 
$

 
$
0.29

 
$
0.29

Net income (loss) per limited partnership unit - diluted
 
$
0.06

 
$

 
$
0.29

 
$
0.29

 
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
 
Common Units
 
Subordinated Units
 
Common Units
 
Subordinated Units
Numerator:
 
 
 
 
 
 
 
 
Distributions paid(a)
 
$
55,228

 
$
4,459

 
$
32,926

 
$
12,435

Allocation of distributions in excess of net income(b)
 
(49,576
)
 
(4,185
)
 
(28,248
)
 
(10,679
)
Limited partners’ interest in net income - basic
 
5,652

 
274

 
4,678

 
1,756

Adjustment for phantom units
 

 

 
9

 

Limited partners’ interest in net income - diluted
 
$
5,652

 
$
274

 
$
4,687

 
$
1,756

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted average limited partnership units outstanding - basic
 
31,714,462

 
1,537,956

 
20,043,565

 
7,525,000

Adjustment for phantom units
 
52,339

 

 
93,773

 

Weighted average limited partnership units outstanding - diluted
 
31,766,801

 
1,537,956

 
20,137,338

 
7,525,000

 
 
 
 
 
 
 
 
 
Net income (loss) per limited partnership unit - basic
 
$
0.18

 
$
0.18

 
$
0.23

 
$
0.23

Net income (loss) per limited partnership unit - diluted
 
$
0.18

 
$
0.18

 
$
0.23

 
$
0.23


21



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(a)
Distributions paid per unit were $0.6025 and $0.5625 during the three months ended September 30, 2016 and 2015, respectively. Distributions paid per unit were $1.7925 and $1.6525 during the nine months ended September 30, 2016 and 2015, respectively.
(b)
Allocation of distributions in excess of net income is based on a pro rata proportion to the common and subordinated units as outlined in the Partnership Agreement.
Note 16. INCOME TAXES
As a limited partnership, we are not subject to federal and state income taxes, however our corporate subsidiaries are subject to income taxes. Income tax attributable to our taxable income, which may differ significantly from income for financial statement purposes, is assessed at the individual limited partner unit holder level. We are subject to a statutory requirement that non-qualifying income, as defined by the Internal Revenue Code, cannot exceed 10% of total gross income for the calendar year. If non-qualifying income exceeds this statutory limit, we would be taxed as a corporation. The non-qualifying income did not exceed the statutory limit in any period presented.
Certain activities that generate non-qualifying income are conducted through LGWS. LGWS is a tax paying corporate subsidiary of ours that is subject to federal and state income taxes. Current and deferred income taxes are recognized on the earnings of LGWS. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates.
We recorded income tax expense of $1.3 million and $0.9 million for the three and nine months ended September 30, 2016 and income tax benefits of $0.1 million and $2.7 million for the three and nine months ended September 30, 2015, respectively, as a result of earnings generated and losses incurred by its corporate subsidiaries. The effective tax rate differs from the combined federal and state statutory rate because only LGWS is subject to income tax.
The tax benefit for the three and nine months ended September 30, 2015 included a $0.1 million increase and a $0.3 million decrease, respectively, in the valuation allowance.
Note 17. 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 the lessee dealer, independent dealer, DMS and CST customer groups. We have exclusive motor fuel distribution contracts with lessee dealers who lease the property from us. We also have exclusive distribution contracts with independent dealers to distribute motor fuel but do not collect rent from the independent dealers. Similar to lessee dealers, we have motor fuel distribution agreements with DMS and CST and collect rent from both. The Retail segment includes the sale of convenience merchandise items, the retail sale of motor fuel at company-operated sites and the retail sale of motor fuel at 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 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.
As part of our evaluation of the economic performance of our retail sites, we will from time to time convert company-owned convenience stores from our Retail segment to our lessee dealer customer group in our Wholesale segment. During the first nine months of 2016, we converted 72 company-operated convenience stores from our Retail segment to our lessee dealer customer group in our Wholesale segment. As such, 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 sites. However, we continue to supply these sites with motor fuel on a wholesale basis pursuant to the fuel supply contract with the lessee dealer. Further, we continue to own/lease the property and earn rental income under lease/sublease agreements with the lessee dealers under triple net leases. The lessee dealer owns all motor fuel and convenience merchandise and retains all gross profit on such operating activities.
Prior to 2016, we netted lease executory costs such as real estate taxes, maintenance, and utilities that we paid and re-billed to customers against rental income on our statement of operations. During the first quarter of 2016, we began accounting for such amounts as rent income and operating expenses and reflected this change in presentation retrospectively. This change resulted in a $2.9 million and $7.9 million increase in rent and other income and operating expenses for the wholesale segment for the three and nine months ended September 30, 2015, respectively.
Unallocated items consist primarily of general and administrative expenses, depreciation, amortization and accretion expense, gains on sales of assets, 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

22



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

23



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reflects activity related to our reportable segments (in thousands):
 
 
Wholesale
 
Retail
 
Unallocated
 
Consolidated
Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
Revenues from fuel sales to external customers
 
$
348,702

 
$
87,318

 
$

 
$
436,020

Intersegment revenues from fuel sales
 
63,126

 

 
(63,126
)
 

Revenues from food and merchandise sales
 

 
31,507

 

 
31,507

Rent income
 
18,344

 
1,408

 

 
19,752

Other revenue
 
671

 

 

 
671

Total revenues
 
$
430,843

 
$
120,233

 
$
(63,126
)
 
$
487,950

 
 
 
 
 
 
 
 
 
Income from CST Fuel Supply Equity
 
$
4,022

 
$

 
$


$
4,022

Operating income (loss)
 
$
27,030

 
$
1,893

 
$
(18,930
)
 
$
9,993

 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
Revenues from fuel sales to external customers
 
$
402,285

 
$
155,952

 
$

 
$
558,237

Intersegment revenues from fuel sales
 
113,246

 

 
(113,246
)
 

Revenues from food and merchandise sales
 

 
51,620

 

 
51,620

Rent income
 
16,415

 
1,386

 

 
17,801

Other revenue
 
157

 
(13
)
 

 
144

Total revenues
 
$
532,103

 
$
208,945

 
$
(113,246
)
 
$
627,802

 
 
 
 
 
 
 
 
 
Income from CST Fuel Supply Equity
 
$
4,198

 
$

 
$

 
$
4,198

Operating income (loss)
 
$
28,017

 
$
6,636

 
$
(19,823
)
 
$
14,830

 
 
 
 
 
 
 
 
 
 
 
Wholesale
 
Retail
 
Unallocated
 
Consolidated
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
Revenues from fuel sales to external customers
 
$
958,943

 
$
253,057

 
$

 
$
1,212,000

Intersegment revenues from fuel sales
 
178,772

 

 
(178,772
)
 

Revenues from food and merchandise sales
 

 
95,253

 

 
95,253

Rent income
 
55,540

 
4,094

 

 
59,634

Other revenue
 
1,447

 

 

 
1,447

Total revenues
 
$
1,194,702

 
$
352,404

 
$
(178,772
)
 
$
1,368,334

 
 
 
 
 
 
 
 
 
Income from CST Fuel Supply Equity
 
$
12,318

 
$

 
$

 
$
12,318

Operating income (loss)
 
$
76,971

 
$
6,291

 
$
(57,992
)
 
$
25,270

 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
Revenues from fuel sales to external customers
 
$
1,178,396

 
$
409,352

 
$

 
$
1,587,748

Intersegment revenues from fuel sales
 
289,780

 

 
(289,780
)
 

Revenues from food and merchandise sales
 

 
122,646

 

 
122,646

Rent income
 
42,709

 
4,120

 

 
46,829

Other revenue
 
1,062

 
110

 

 
1,172

Total revenues
 
$
1,511,947

 
$
536,228

 
$
(289,780
)
 
$
1,758,395

 
 
 
 
 
 
 
 
 
Income from CST Fuel Supply Equity
 
$
6,473

 
$

 
$

 
$
6,473

Operating income (loss)
 
$
63,301

 
$
15,276

 
$
(60,506
)
 
$
18,071


24



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. SUPPLEMENTAL CASH FLOW INFORMATION
In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in current assets and current liabilities as follows (in thousands):
 
Nine Months Ended September 30,
 
2016
 
2015
Decrease (increase):
 
 
 
Accounts receivable
$
941

 
$
(3,904
)
Accounts receivable from related parties
(2,281
)
 
(768
)
Inventories
5,424

 
6,867

Other current assets
(1,249
)
 
2,534

Other assets
(3,484
)
 
584

Increase (decrease):
 
 
 
Accounts payable
2,055

 
(407
)
Accounts payable to related parties
(1,021
)
 
811

Motor fuel taxes payable
1,117

 
(397
)
Accrued expenses and other current liabilities
(1,644
)
 
(6,286
)
Other long-term liabilities
3,339

 
1,122

Changes in working capital, net of acquisitions
$
3,197

 
$
156

The above changes in current assets and current liabilities may differ from changes between amounts reflected in the applicable balance sheets for the respective periods due to acquisitions.
Supplemental disclosure of cash flow information (in thousands):
 
Nine Months Ended September 30,
 
2016
 
2015
Cash paid for interest
$
15,355

 
$
12,604

Cash paid for income taxes
$
1,366

 
$
970

Supplemental schedule of non-cash investing and financing activities (in thousands):
 
Nine Months Ended September 30,
 
2016
 
2015
Sale of property and equipment in Section 1031 like-kind exchange transactions
$
1,300

 
$

Acquisition of property through foreclosure on note receivable
$

 
$
930

Removal of property and equipment and capital lease obligation for sales terminated from Getty lease
$

 
$
(1,333
)
Issuance of capital lease obligations and recognition of asset
     retirement obligation related to Getty lease
$
1,240

 
$

Amended Omnibus Agreement fees settled in our common
     units
$
8,290

 
$
4,352

Units issued to CST as consideration for the NTIs and the equity interest in CST Fuel Supply
$

 
163,292


25



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19. TERMINATION BENEFITS
As a result of the continued integration of certain processes and systems for our recently acquired businesses, we committed to a workforce reduction affecting certain employees in our Retail segment and have accrued substantially all termination costs as of September 30, 2016.
A rollforward of the liability for severance and other termination benefits is as follows (in thousands):
Balance at December 31, 2015
 
$
1,665

Provision for termination benefits (included in general and administrative expenses)
 
331

Termination benefits paid
 
(1,809
)
Balance at September 30, 2016
 
$
187


26




ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report includes forward-looking statements, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, credit ratings, distribution growth, potential growth opportunities, potential operating performance improvements, potential improvements in return on capital employed, the effects of competition and the effects of future legislation or regulations. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “guidance,” “outlook,” “effort,” “target” and similar expressions. Such statements are based on management’s current views and assumptions, and involve risks and uncertainties that could affect expected results. These forward-looking statements include, among other things, statements regarding:
future retail and wholesale gross profits, including gasoline, diesel and convenience store merchandise gross profits;
our anticipated level of capital investments, primarily through acquisitions, and the effect of these capital investments on our results of operations;
anticipated trends in the demand for, and volumes sold of, gasoline and diesel in the regions where we operate;
volatility in the equity and credit markets limiting access to capital markets;
our ability to integrate acquired businesses and to transition retail sites to dealer operated sites;
expectations regarding environmental, tax and other regulatory initiatives; and
the effect of general economic and other conditions on our business.
In general, we based the forward-looking statements included in this quarterly report on our current expectations, estimates and projections about our company and the industry in which we operate. We caution you that these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. 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:
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;
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;
our existing or future indebtedness;
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 or governmental policies 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;
increases in energy conservation efforts;

27


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;
our ability to comply with federal and state regulations, including those related to environmental matters, the sale of alcohol, cigarettes and fresh foods, and employment laws and health benefits;
CST’s Merger or its Merger Agreement and interim operating covenants contained therein; and
CST’s business strategy and operations and CST’s conflicts of interest with us and, post-merger, Couche-Tard’s business strategy and operations and Couche-Tard’s conflicts of interest with us.
You should consider the areas of risk described above, as well as those set forth herein in Part II, Item 1A “Risk Factors” and in the section entitled “Risk Factors” included in our Form 10-K for the year ended December 31, 2015 and our Forms 10-Q for the quarterly periods ended March 31 and June 30, 2016, in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that projected 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.
For additional information regarding CST, CST’s Merger and CST’s Merger Agreement, refer to CST’s Form 10-K for the year ended December 31, 2015, CST’s Forms 10-Q for the quarterly periods ended March 31 and June 30, 2016, and CST’s Definitive Proxy Statement filed with the SEC on October 11, 2016.

28


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this report, and the MD&A section and the consolidated financial statements and accompanying notes to those financial statements in our Form 10-K. Our Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations.
MD&A is organized as follows:
CST’s Merger Agreement—This section provides information on the pending Merger.
Significant Factors Affecting Our Profitability—This section describes the significant impact on our results of operations caused by crude oil commodity price volatility, seasonality and acquisition and financing activities.
Results of Operations—This section provides an analysis of our results of operations, including the results of operations of our business segments, for the three and nine months ended September 30, 2016 and 2015, 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 and other matters impacting our liquidity and capital resources.
Outlook—This section provides a discussion of the outlook for our business.
New Accounting Policies—This section describes new accounting pronouncements that we have already adopted, those that we are required to adopt in the future, and those that became applicable in the current year as a result of new circumstances.
Critical Accounting Policies Involving Critical Accounting Estimates—This section describes the accounting policies and estimates that we consider most important for our business and that require significant judgment.
CST’s Merger Agreement
Under the terms of the Merger Agreement, Circle K Stores Inc. will, through its acquisition of CST, control CST’s interest in the General Partner and CST’s 19.6% limited partner interest in CrossAmerica as well as all of the IDRs. The transaction is subject to the approval of CST’s stockholders on November 16, 2016 and the receipt of regulatory approvals in the United States and Canada. The transaction is currently expected to close early calendar year 2017. Refer to CST’s Definitive Proxy Statement filed with the SEC on October 11, 2016.
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 on approximately 87% of gallons sold to our customers. The remaining gallons are primarily DTW priced contracts with our customers. These contracts provide for variable, market based pricing that results in motor fuel gross profit effects similar to retail motor fuel gross profits (as crude oil prices decline, motor fuel gross profit generally increases, as discussed in our Retail segment below). The increase in DTW gross profit results from the acquisition cost of wholesale motor fuel declining at a faster rate as compared to the rate retail motor fuel prices decline. Alternatively, our DTW motor fuel gross profit declines when the cost of wholesale motor fuel increases at a faster rate as compared to the rate retail motor fuel prices increase.
Regarding our supplier relationships, a majority of our total gallons purchased are subject to discounts for prompt payment and other rebates and incentives, which are recorded within cost of sales. Prompt payment discounts are based on a percentage of the purchase price of motor fuel. As such, the dollar value of these discounts increase and decrease corresponding with 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).  Based on our current volumes,

29


we estimate a $10 per barrel change in the price of crude oil would impact our overall annual wholesale motor fuel gross profit by approximately $2.2 million related to these payment discounts.
Retail segment
The prices we pay for wholesale motor fuel are closely correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil and wholesale motor fuel experience significant and rapid fluctuations. We attempt to pass along wholesale motor fuel price changes to our retail customers through “at the pump” retail price changes; however, market conditions do not always allow us to do so immediately. The timing of any related increase or decrease in “at the pump” retail prices is affected by competitive conditions in each geographic market in which we operate. As such, the prices we charge our customers for motor fuel and the gross profit we receive on our motor fuel sales can increase or decrease significantly and rapidly over short periods of time.
Changes in our average motor fuel selling price per gallon and gross margin for the periods ended September 30, 2016 and 2015 are directly related to the changes in crude oil and wholesale motor fuel prices over the same period. Variations in our reported revenues and cost of sales are, therefore, primarily related to the price of crude oil and wholesale motor fuel prices and generally not as a result of changes in motor fuel sales volumes, unless otherwise indicated and discussed below.
We typically experience lower retail motor fuel gross profits in periods when the wholesale cost of motor fuel increases, and higher retail motor fuel gross profits in periods when the wholesale cost of motor fuel declines rapidly.
Seasonality Effects on Volumes
Our business is subject to seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer months) and lowest during the winter months in the first and fourth quarters.
Impact of Inflation
Inflation affects our financial performance by increasing certain of our operating expenses and cost of goods sold. Operating expenses include labor costs, leases, and general and administrative expenses. While our Wholesale segment benefits from higher terms discount as a result of higher fuel costs, inflation could negatively impact our Retail segment as a result of higher motor fuel, merchandise and operating costs. 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.
Acquisition and Financing Activity
Our results of operations and financial condition are also impacted by our acquisition and financing activities as summarized below.
2016
On September 27, 2016, we acquired the State Oil Assets located in the greater Chicago market for approximately $41.8 million, including working capital. See Note 2 of the Condensed Notes to Consolidated Financial Statements for additional information.
On July 7, 2016, CST provided an $18.2 million refund payment to us for our 17.5% interest in CST Fuel Supply. See Note 2 of the Condensed Notes to Consolidated Financial Statements for additional information.
On March 29, 2016, we closed on the acquisition of Franchised Holiday Stores and company-operated liquor stores from S/S/G Corporation for approximately $52.4 million, including working capital. See Note 2 of the Condensed Notes to Consolidated Financial Statements for additional information.
On February 5, 2016, we purchased independent dealer and subwholesaler contracts from CST for $2.9 million. See Notes 2 and 10 of the Condensed Notes to Consolidated Financial Statements for additional information.
2015
In July 2015, we closed on the purchase of a 12.5% limited partner equity interest in CST Fuel Supply for aggregate consideration of 3.3 million common units and cash in the amount of $17.5 million, with an aggregate consideration of $110.9 million on the date of closing.

30


In July 2015, we closed on the purchase of convenience stores from One Stop and associated fee properties for $45.0 million.
In July 2015, we completed the purchase of real property at 29 NTIs from CST in exchange for an aggregate consideration of approximately 0.3 million common units and cash in the amount of $124.4 million, with an aggregate consideration of $134.0 million on the date of closing.
In June 2015, we closed on the sale of 4.6 million common units for net proceeds of approximately $138.5 million. In July 2015, we closed on the sale of an additional 0.2 million common units for net proceeds of approximately $6.4 million in accordance with the underwriters’ option to purchase additional common units associated with the June offering. We used the proceeds to reduce indebtedness outstanding under our credit facility.
In February 2015, we closed on the purchase of all of the outstanding capital stock of Erickson and certain related assets for an aggregate purchase price of $83.8 million, including working capital. See Note 2 of the Condensed Notes to Consolidated Financial Statements for additional information.