10-Q 1 capl-10q_20180331.htm 10Q capl-10q_20180331.htm

 

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 March 31, 2018

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

 

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.)

 

 

 

 

600 Hamilton Street, Suite 500

Allentown, PA

 

18101

(Zip Code)

(610) 625-8000

(Address of Principal Executive Offices)

 

(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      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      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 (Do not check if a smaller reporting company)

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.     Yes      No  

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 May 3, 2018, the registrant had outstanding 34,278,095 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 March 31, 2018 (unaudited) and December 31, 2017

 

1

Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2018 and 2017

 

2

Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2018 and 2017

 

3

Condensed Notes to Consolidated Financial Statements

 

4

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

 

16

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

30

Item 4. Controls and Procedures

 

30

PART II - OTHER INFORMATION

 

31

Item 1. Legal Proceedings

 

31

Item 1A. Risk Factors

 

31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

31

Item 6. Exhibits

 

31

SIGNATURE

 

32

 

 

 

 


 

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 Partners LP

 

CrossAmerica, the Partnership, we, us, our

 

 

 

LGP Operations LLC

 

a wholly owned subsidiary of the Partnership

 

 

 

LGW

 

Lehigh Gas Wholesale LLC

 

 

 

LGPR

 

LGP Realty Holdings LP

 

 

 

LGWS

 

Lehigh Gas Wholesale Services, Inc. and subsidiaries

 

 

 

CrossAmerica Partners LP related parties:

 

Circle K

 

Circle K Stores Inc., a Texas corporation, and a wholly owned subsidiary of Couche-Tard

 

 

 

Couche-Tard

 

Alimentation Couche-Tard Inc. (TSX: ATD.A ATD.B)

 

 

 

Couche-Tard Board

 

the Board of Directors of Couche-Tard

 

 

 

CST

 

CST Brands, LLC and subsidiaries, indirectly owned by Circle K.

 

 

 

DMI

 

Dunne Manning Inc., an entity affiliated with Joseph V. Topper, Jr., a member of the Board, a related party and large holder of our common units

 

 

 

DMR

 

Dunne Manning Realty LP, an entity affiliated with Joseph V. Topper, Jr., a member of the Board, a related party and large holder of our common units.

 

 

 

DMS

 

 

Dunne Manning Stores LLC (formerly known as Lehigh Gas-Ohio, LLC), an entity affiliated with the family of Joseph V. Topper, Jr., a member of the Board, a related party and large holder of our common units. 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, a Delaware limited liability company, indirectly owned by Circle K.

 

 

 

CST Fuel Supply

 

CST Fuel Supply LP is the parent of CST Marketing and Supply, indirectly owned by Circle K. As of March 31, 2018, our total limited partner interest in CST Fuel Supply was 17.5%.

 

 

 

CST Marketing and Supply

 

CST Marketing and Supply, LLC, indirectly owned by Circle K. It is 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.

 

 

 

CST Services

 

CST Services, LLC, a wholly owned subsidiary of Circle K

 

 

 

Topstar

 

Topstar Enterprises, an entity affiliated 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:

 

 

 

Franchised Holiday Stores

 

The franchised Holiday stores acquired in March 2016

 

 

 

Jet-Pep Assets

 

The assets acquired from Jet-Pep, Inc. in November 2017

 

 

 

Other Defined Terms:

 

 

 

 

 

Amended Omnibus Agreement

 

The Amended and Restated Omnibus Agreement, dated October 1, 2014, as amended on February 17, 2016 and May 7, 2018 by and among CrossAmerica, the General Partner, DMI, 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. The terms of the Amended Omnibus Agreement were approved by the conflicts committee of the Board. Pursuant to the Amended Omnibus Agreement, CST Services agrees, among other things, to provide, or cause to be provided, to the Partnership certain management services.

 

 

 

i


 

ASC

 

Accounting Standards Codification

 

 

 

ASU

 

Accounting Standards Update

 

 

 

Board

 

Board of Directors of our General Partner

 

 

 

BP

 

BP p.l.c.

 

 

 

Branded Motor Fuels

 

Motor fuels that are purchased from major integrated oil companies and refiners under supply agreements. We take legal title to the motor fuel when we receive it at the rack and generally arrange for a third-party transportation provider to take delivery of the motor fuel at the rack and deliver it to the appropriate sites in our network.

 

 

 

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, amortization and accretion, a non-GAAP financial measure

 

 

 

EICP

 

The Partnership’s Lehigh Gas Partners LP Executive Income Continuity Plan, as amended

 

 

 

Exchange Act

 

Securities Exchange Act of 1934, as amended

 

 

 

ExxonMobil

 

ExxonMobil Corporation

 

 

 

FASB

 

Financial Accounting Standards Board

 

 

 

Form 10-K

 

CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, 2017

 

 

 

FTC

 

U.S. Federal Trade Commission

 

 

 

Getty Lease

 

In May 2012, the Predecessor Entity, which represents the portion of the business of Dunne Manning Inc. and its subsidiaries and affiliates contributed to the Partnership in connection with the IPO, entered into a 15-year master lease agreement with renewal options of up to an additional 20 years with Getty Realty Corporation. The Partnership pays fixed rent, which increases 1.5% per year. In addition, the lease requires contingent rent payments based on gallons of motor fuel sold. The Partnership leases sites under the lease in Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Pennsylvania and Rhode Island.

 

 

 

IDRs

 

Incentive Distribution Rights represent the right to receive an increasing percentage of quarterly distributions after the target distribution levels have been achieved, as defined in our Partnership Agreement. Circle K is the indirect 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, which closed on June 28, 2017. See Merger Agreement below.

 

 

 

Merger Agreement

 

CST’s Agreement and Plan of Merger entered into on August 21, 2016 with Circle K and Ultra Acquisition Corp., a Delaware corporation and an indirect, wholly owned subsidiary of Circle K (“Merger Sub”). Under and subject to the terms and conditions of the Merger Agreement, on June 28, 2017, Merger Sub was merged with and into CST, with CST surviving the Merger as a wholly owned subsidiary of Circle K.

 

 

 

MD&A

 

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

 

 

 

Motiva

 

Motiva Enterprises LLC

 

 

 

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

 

 

 

ii


 

Plan

 

 

In connection with the IPO, the General Partner adopted the Lehigh Gas Partners LP 2012 Incentive

Award Plan, a long-term incentive plan for employees, officers, consultants and directors of the General Partner and any of its affiliates who perform services for the Partnership

 

 

 

Predecessor Entity

 

Wholesale distribution business of DMS and real property and leasehold interests contributed in connection with the IPO

 

 

 

Retail Site

 

A general term to refer to convenience stores, including those operated by commission agents, independent dealers, Circle K, DMS or lessee dealers, as well as company operated sites

 

 

 

RIN

 

Renewable identification number, an identifier used by governmental agencies to track a specific batch of renewable fuel

 

 

 

SEC

 

U.S. Securities and Exchange Commission

 

 

 

Tax Cuts and Jobs Act

 

On December 22, 2017, the U.S. government enacted tax legislation formally known as Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act

 

 

 

Terms Discounts

 

Discounts for prompt payment and other rebates and incentives from our suppliers for a majority of the gallons of motor fuel purchased by us, which are recorded within cost of sales. Prompt payment discounts are based on a percentage of the purchase price of motor fuel.

 

 

 

U.S. GAAP

 

United States Generally Accepted Accounting Principles

 

 

 

UST

 

Underground storage tanks

 

 

 

Valero

 

Valero Energy Corporation and, where appropriate in context, one or more of its subsidiaries, or all of them taken as a whole

 

 

 

WTI

 

West Texas Intermediate crude oil

 

 

iii


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROSSAMERICA PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, except unit data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

1,680

 

 

$

3,897

 

Accounts receivable, net of allowances of $402 and $277, respectively

 

 

25,487

 

 

 

27,792

 

Accounts receivable from related parties

 

 

15,826

 

 

 

14,459

 

Inventories

 

 

15,233

 

 

 

15,122

 

Assets held for sale

 

 

10,803

 

 

 

11,708

 

Other current assets

 

 

6,137

 

 

 

7,528

 

Total current assets

 

 

75,166

 

 

 

80,506

 

Property and equipment, net

 

 

671,871

 

 

 

681,000

 

Intangible assets, net

 

 

72,159

 

 

 

76,063

 

Goodwill

 

 

89,109

 

 

 

89,109

 

Other assets

 

 

21,049

 

 

 

20,558

 

Total assets

 

$

929,354

 

 

$

947,236

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt and capital lease obligations

 

$

2,919

 

 

$

2,916

 

Accounts payable

 

 

35,726

 

 

 

35,789

 

Accounts payable to related parties

 

 

26,208

 

 

 

25,512

 

Accrued expenses and other current liabilities

 

 

16,040

 

 

 

17,015

 

Motor fuel taxes payable

 

 

11,815

 

 

 

12,241

 

Total current liabilities

 

 

92,708

 

 

 

93,473

 

Debt and capital lease obligations, less current portion

 

 

533,865

 

 

 

529,147

 

Deferred tax liabilities, net

 

 

23,419

 

 

 

24,069

 

Asset retirement obligations

 

 

31,843

 

 

 

31,467

 

Other long-term liabilities

 

 

96,702

 

 

 

98,061

 

Total liabilities

 

 

778,537

 

 

 

776,217

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Partners’ Capital

 

 

 

 

 

 

 

 

Common units—(34,248,343 and 34,111,461 units issued and

   outstanding at March 31, 2018 and December 31, 2017,

   respectively)

 

 

151,155

 

 

 

171,337

 

General Partner’s interest

 

 

 

 

 

 

Total Partners’ Capital

 

 

151,155

 

 

 

171,337

 

Noncontrolling interests

 

 

(338

)

 

 

(318

)

Total equity

 

 

150,817

 

 

 

171,019

 

Total liabilities and equity

 

$

929,354

 

 

$

947,236

 

 

See Condensed Notes to Consolidated Financial Statements.

1


CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Thousands of Dollars, Except Unit and Per Unit Amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Operating revenues(a)

 

$

554,570

 

 

$

469,286

 

Costs of sales(b)

 

 

514,619

 

 

 

431,840

 

Gross profit

 

 

39,951

 

 

 

37,446

 

 

 

 

 

 

 

 

 

 

Income from CST Fuel Supply equity interests

 

 

3,805

 

 

 

3,603

 

Operating expenses:

 

 

 

 

 

 

 

 

Operating expenses

 

 

16,342

 

 

 

15,260

 

General and administrative expenses

 

 

4,720

 

 

 

5,817

 

Depreciation, amortization and accretion expense

 

 

15,500

 

 

 

14,348

 

Total operating expenses

 

 

36,562

 

 

 

35,425

 

Gain (loss) on sales of assets, net

 

 

230

 

 

 

(44

)

Operating income

 

 

7,424

 

 

 

5,580

 

Other income (expense), net

 

 

94

 

 

 

118

 

Interest expense

 

 

(8,052

)

 

 

(6,702

)

(Loss) income before income taxes

 

 

(534

)

 

 

(1,004

)

Income tax expense (benefit)

 

 

273

 

 

 

(2,701

)

Net (loss) income

 

 

(807

)

 

 

1,697

 

Less: net (loss) income attributable to noncontrolling

   interests

 

 

(2

)

 

 

1

 

Net (loss) income attributable to limited partners

 

 

(805

)

 

 

1,696

 

IDR distributions

 

 

(1,180

)

 

 

(992

)

Net (loss) income available to limited partners

 

$

(1,985

)

 

$

704

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per limited partner unit

 

$

(0.06

)

 

$

0.02

 

 

 

 

 

 

 

 

 

 

Weighted-average limited partner units:

 

 

 

 

 

 

 

 

Basic common units

 

 

34,157,088

 

 

 

33,588,163

 

Diluted common units(c)

 

 

34,165,060

 

 

 

33,622,661

 

 

 

 

 

 

 

 

 

 

Distribution paid per common unit

 

$

0.6275

 

 

$

0.6125

 

Distribution declared (with respect to each respective

   period) per common unit

 

$

0.5250

 

 

$

0.6175

 

Supplemental information:

 

 

 

 

 

 

 

 

(a) Includes excise taxes of:

 

$

24,358

 

 

$

18,552

 

(a) Includes revenues from fuel sales to and rental

      income from related parties of:

 

 

103,521

 

 

 

94,217

 

(a) Includes rental income of:

 

 

21,721

 

 

 

21,441

 

(b) Includes rental expense of:

 

 

4,815

 

 

 

4,791

 

(c) Diluted common units were not used in the calculation of diluted earnings per common unit for the three months ended

      March 31, 2018 because to do so would have been antidilutive.

 

 

See Condensed Notes to Consolidated Financial Statements.

 

 

2


CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(807

)

 

$

1,697

 

Adjustments to reconcile net (loss) income to net cash flows provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion expense

 

 

15,500

 

 

 

14,348

 

Amortization of deferred financing costs

 

 

428

 

 

 

424

 

Amortization of (above) below market leases, net

 

 

(1

)

 

 

27

 

Provision for losses on doubtful accounts

 

 

125

 

 

 

4

 

Deferred income taxes

 

 

(650

)

 

 

(3,182

)

Equity-based employee and director compensation expense

 

 

43

 

 

 

866

 

Amended Omnibus Agreement fees settled in common units

 

 

3,300

 

 

 

3,300

 

(Gain) loss on sales of assets, net

 

 

(230

)

 

 

44

 

Changes in operating assets and liabilities, net of acquisitions

 

 

432

 

 

 

4,244

 

Net cash provided by operating activities

 

 

18,140

 

 

 

21,772

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

19

 

 

 

342

 

Capital expenditures

 

 

(2,097

)

 

 

(2,517

)

Principal payments received on notes receivable

 

 

71

 

 

 

64

 

Net cash used in investing activities

 

 

(2,007

)

 

 

(2,111

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under the revolving credit facility

 

 

40,395

 

 

 

31,026

 

Repayments on the revolving credit facility

 

 

(35,395

)

 

 

(24,026

)

Payments of long-term debt and capital lease obligations

 

 

(498

)

 

 

(495

)

Payments of sale leaseback obligations

 

 

(239

)

 

 

(201

)

Distributions paid on distribution equivalent rights

 

 

(10

)

 

 

(7

)

Distributions paid to holders of the IDRs

 

 

(1,180

)

 

 

(992

)

Distributions paid to noncontrolling interests

 

 

(18

)

 

 

(24

)

Distributions paid on common units

 

 

(21,405

)

 

 

(20,534

)

Net cash used in financing activities

 

 

(18,350

)

 

 

(15,253

)

Net (decrease) increase in cash

 

 

(2,217

)

 

 

4,408

 

Cash at beginning of period

 

 

3,897

 

 

 

1,350

 

Cash at end of period

 

$

1,680

 

 

$

5,758

 

 

See Condensed Notes to Consolidated Financial Statements.

 

 

3


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES

Couche-Tard and CST Merger

On June 28, 2017, a wholly owned subsidiary of Circle K, merged with and into CST, with CST surviving the Merger as an indirect, wholly owned subsidiary of Circle K. Circle K is a wholly owned subsidiary of Couche-Tard. 

As a result of the Merger, Circle K indirectly owns all of the membership interests in the sole member of our General Partner, as well as a 21.4% limited partner interest in the Partnership and all of the IDRs of the Partnership. Circle K, through its indirect ownership interest in the sole member of our General Partner, has the ability to appoint all of the members of the Board and to control and manage our operations and activities. 

Description of Business

Our business consists of:

 

the wholesale distribution of motor fuels;

 

the retail distribution of motor fuels to end customers at retail sites operated by commission agents or us;

 

generating revenues through leasing or subleasing our real estate used in the retail distribution of motor fuels; and

 

the operation of retail sites.

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 the real estate holding company and holds assets that generate qualified rental income 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.

Interim Financial Statements

These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and the Exchange Act. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Management believes that the disclosures made are adequate to keep the information presented from being misleading. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K. Financial information as of March 31, 2018 and for the three months ended March 31, 2018 and 2017 included in the consolidated financial statements has been derived from our unaudited financial statements. Financial information as of December 31, 2017 has been derived from our audited financial statements and notes thereto as of that date.

Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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.

4


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results and outcomes could differ from those estimates and assumptions. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09–Revenue from Contracts with Customers (Topic 606), which results in comprehensive new revenue accounting guidance, requires enhanced disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized, and develops a common revenue standard under U.S. GAAP and International Financial Reporting Standards. Specifically, the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance was effective January 1, 2018 and we applied the modified retrospective method of adoption. There was no material impact on the financial statements other than disclosures. This guidance applies to over 90% of our revenues as the only primary revenue stream outside the scope of this guidance is rental income.

Revenues from the delivery of motor fuel are recorded at the time of delivery to our customers, by which time the price is fixed, title to the products has transferred and payment has either been received or collection is reasonably assured, net of applicable discounts and allowances.

Revenues from the sale of convenience store products are recognized at the time of sale to the customer.

Revenues from leasing arrangements for which we are the lessor are recognized ratably over the term of the underlying lease.

See Note 13 for additional information on our revenues and related receivables.

Motor Fuel Taxes

LGW collects motor fuel taxes, which consist of various pass through taxes collected from customers on behalf of taxing authorities, and remits such taxes directly to those taxing authorities. LGW’s accounting policy is to exclude the taxes collected and remitted from wholesale revenues and cost of sales and account for them as liabilities. LGWS’s retail sales and cost of sales include motor fuel taxes as the taxes are included in the cost paid for motor fuel and LGWS has no direct responsibility to collect or remit such taxes to the taxing authorities. This accounting policy is consistent with that used in prior periods.

Investment in CST Fuel Supply

ASU 2016-15–Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) was effective January 1, 2018. This ASU provides guidance on cash flow presentation of various specific transactions.

We apply the cumulative earnings approach in presenting our cash flows from our investment in CST Fuel Supply. Distributions received are considered returns on investment and classified as cash inflows from operating activities.

Significant Accounting Policies

There have been no other material changes to the significant accounting policies described in our Form 10-K.

New Accounting Guidance Pending Adoption

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. This guidance will be effective January 1, 2019. Management continues to evaluate the impact of this new guidance, but the adoption will have a material impact on our balance sheet as we will be required to recognize right-of-use assets and lease liabilities for operating leases. We intend to apply each of the practical expedients in adopting this new guidance.

5


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Certain other new financial accounting pronouncements have become effective for our financial statements but the adoption of these pronouncements did not materially impact our financial position, results of operations or disclosures.

Concentration Risk

For the three months ended March 31, 2018, we distributed 12% of our total wholesale distribution volumes to DMS and DMS accounted for 20% of our rental income. For the three months ended March 31, 2017, we distributed 14% of our total wholesale distribution volumes to DMS and DMS accounted for 23% of our rental income.  

For the three months ended March 31, 2018, we distributed 7% of our total wholesale distribution volume to Circle K retail sites that are not supplied by CST Fuel Supply and received 19% of our rental income from Circle K. For the three months ended March 31, 2017, we distributed 7% of our total wholesale distribution volume to CST retail sites that are not supplied by CST Fuel Supply and received 20% of our rental income from CST.

For more information regarding transactions with DMS and Circle K, see Note 7.

For the three months ended March 31, 2018, our wholesale business purchased approximately 26%, 26%, 12% and 11% of its motor fuel from ExxonMobil, BP, Motiva and Circle K, respectively. For the three months ended March 31, 2017, our wholesale business purchased approximately 28%, 27% and 22% of its motor fuel from ExxonMobil, BP and Motiva, respectively. No other fuel suppliers accounted for 10% or more of our motor fuel purchases during the three months ended March 31, 2018 and 2017.

Valero supplied substantially all of the motor fuel purchased by CST Fuel Supply during all periods presented. During the three months ended March 31, 2018 and 2017, CST Fuel Supply purchased approximately 0.4 billion gallons of motor fuel from Valero.

Note 2. ASSETS HELD FOR SALE

We have classified 12 sites as held for sale at March 31, 2018 and December 31, 2017. Of the sites held for sale at March 31, 2018, 11 are required to be divested per an FTC order in connection with Couche-Tard’s acquisition of Holiday Stationstores, Inc. and the joint acquisition of Jet-Pep Assets by Circle K and us. These assets are expected to be sold in 2018. Assets held for sale were as follows (in thousands): 

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Land

 

$

5,040

 

 

$

4,946

 

Buildings and site improvements

 

 

5,181

 

 

 

5,785

 

Equipment

 

 

2,332

 

 

 

2,485

 

Total

 

 

12,553

 

 

 

13,216

 

Less accumulated depreciation

 

 

(1,750

)

 

 

(1,508

)

Assets held for sale

 

$

10,803

 

 

$

11,708

 

 

We recorded an impairment charge of $1.2 million during the three months ended March 31, 2018 related to the FTC-required divestiture of the Jet-Pep sites, included within depreciation, amortization and accretion expense on the statement of operations.

Note 3. INVENTORIES

Inventories consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Retail site merchandise

 

$

7,699

 

 

$

7,806

 

Motor fuel

 

 

7,534

 

 

 

7,316

 

Inventories

 

$

15,233

 

 

$

15,122

 

 

6


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 4. PROPERTY AND EQUIPMENT

Property and equipment, net consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Land

 

$

284,794

 

 

$

285,682

 

Buildings and site improvements

 

 

362,492

 

 

 

362,207

 

Leasehold improvements

 

 

10,408

 

 

 

10,155

 

Equipment

 

 

186,293

 

 

 

185,733

 

Construction in progress

 

 

2,252

 

 

 

1,797

 

Property and equipment, at cost

 

 

846,239

 

 

 

845,574

 

Accumulated depreciation and amortization

 

 

(174,368

)

 

 

(164,574

)

Property and equipment, net

 

$

671,871

 

 

$

681,000

 

 

Note 5. INTANGIBLE ASSETS

Intangible assets consisted of the following (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

Wholesale fuel supply contracts/rights

 

$

127,955

 

 

$

(60,146

)

 

$

67,809

 

 

$

127,955

 

 

$

(56,915

)

 

$

71,040

 

Trademarks

 

 

2,064

 

 

 

(952

)

 

 

1,112

 

 

 

2,064

 

 

 

(863

)

 

 

1,201

 

Covenant not to compete

 

 

4,581

 

 

 

(3,505

)

 

 

1,076

 

 

 

4,581

 

 

 

(3,300

)

 

 

1,281

 

Below market leases

 

 

11,401

 

 

 

(9,239

)

 

 

2,162

 

 

 

11,401

 

 

 

(8,860

)

 

 

2,541

 

Total intangible assets

 

$

146,001

 

 

$

(73,842

)

 

$

72,159

 

 

$

146,001

 

 

$

(69,938

)

 

$

76,063

 

 

Note 6. DEBT

Our balances for long-term debt and capital lease obligations are as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

$550 million revolving credit facility

 

$

511,000

 

 

$

506,000

 

Capital lease obligations

 

 

26,546

 

 

 

27,220

 

Note payable

 

 

750

 

 

 

765

 

Total debt and capital lease obligations

 

 

538,296

 

 

 

533,985

 

Current portion

 

 

2,919

 

 

 

2,916

 

Noncurrent portion

 

 

535,377

 

 

 

531,069

 

Deferred financing costs, net

 

 

1,512

 

 

 

1,922

 

Noncurrent portion, net of deferred financing costs

 

$

533,865

 

 

$

529,147

 

 

Our revolving credit facility is secured by substantially all of our assets. Letters of credit outstanding at March 31, 2018 and December 31, 2017 totaled $5.4 million and $6.7 million, respectively, which reduce our availability under the credit facility. The amount of availability at March 31, 2018 under the revolving credit facility, after taking into account debt covenant restrictions, was $33.6 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.

7


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Financial Covenants and Interest Rate

We are required to comply with certain financial covenants under the credit facility. We are required to maintain a total leverage ratio (as defined in the revolving credit facility) for the most recently completed four fiscal quarters of less than or equal to 4.50 : 1.00, except for periods following a material acquisition, generally defined as an acquisition with a purchase price of at least $30.0 million. The total leverage ratio shall not exceed 5.00 : 1.00 for the first four full fiscal quarters following the closing of a material acquisition. If we issued qualified senior notes (as defined in the revolving credit facility) in the aggregate principal amount of $175.0 million or greater, the ratio shall not exceed 5.50 : 1.00. If we issued Qualified Senior Notes of $175.0 million or greater, we are also required to maintain a senior leverage ratio (as defined in the revolving credit facility) of less than or equal to 3.00 : 1.00 and a consolidated interest coverage ratio (as defined in the credit facility) of at least 2.75 : 1.00. As of March 31, 2018, we were in compliance with these financial covenants.

At March 31, 2018, outstanding borrowings under the revolving credit facility bore interest at LIBOR plus a margin of 3.00%. Our borrowings had an effective interest rate of 4.74% as of March 31, 2018.

On April 25, 2018, the credit facility was amended to:

 

Extend the maturity date from March 4, 2019 to April 25, 2020;

 

Increase the capacity from $550 million to $650 million;

 

Extend the period during which the permitted total leverage ratio (as defined in the revolving credit facility) is increased from 4.50 : 1.00 to 5.00 : 1.00 after the closing of a material acquisition (as defined in the revolving credit facility) from three quarters to four quarters; and

 

Decrease the applicable margin and commitment fee (each as defined in the revolving credit facility), which vary based on our leverage ratio, such that the applicable margin ranges from 1.50% to 2.75% for LIBOR rate loans (as defined in the revolving credit facility) and 0.50% to 1.75% for alternate base rate loans (as defined in the revolving credit facility), and the commitment fee ranges from 0.20% to 0.45%. In general, the applicable margin for LIBOR and alternate base rate loans was reduced by 0.5%.

Note 7. RELATED-PARTY TRANSACTIONS

Transactions with Circle K

Fuel Sales and Rental Income

We sell wholesale motor fuel under a master fuel distribution agreement to 49 Circle K retail sites and lease real property on 73 retail sites to Circle K 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 and Circle K were as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Revenues from motor fuel sales to CST and Circle K

 

$

36,060

 

 

$

30,380

 

Rental income from CST and Circle K

 

 

4,198

 

 

 

4,280

 

 

Accounts receivable from Circle K for fuel amounted to $4.7 million and $3.9 million at March 31, 2018 and December 31, 2017, respectively.

CST Fuel Supply Equity Interests

CST Fuel Supply provides wholesale motor fuel distribution to the majority of CST’s legacy U.S. retail sites at cost plus a fixed markup per gallon. We owned a 17.5% total interest in CST Fuel Supply at March 31, 2018 and 2017. 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 $3.8 million and $3.6 million for the three months ended March 31, 2018 and 2017, respectively.

8


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Purchase of Fuel from CST and Circle K

We purchase the fuel supplied to 21 retail sites from CST Fuel Supply of which we own a 17.5% interest, and resell the wholesale motor fuel to independent dealers and sub-wholesalers. We purchased $4.9 million and $5.7 million of motor fuel from CST Fuel Supply for the three months ended March 31, 2018 and 2017.

We also purchase the fuel supplied to 101 retail sites acquired in the Jet-Pep Assets acquisition from a terminal owned and operated by Circle K. We purchased $30.9 million of motor fuel from Circle K for the three months ended March 31, 2018.

Circle K acquired Holiday Stationstores, Inc. (Holiday) on December 22, 2017. Prior to that acquisition, we were a franchisee of Holiday (Franchised Holiday Stores), purchased fuel from Holiday and paid a franchise fee to Holiday. As a result of Circle K’s acquisition, we now purchase fuel from Circle K to supply our Holiday-branded sites. These purchases amounted to $11.1 million for the three months ended March 31, 2018. We also pay a franchise fee to Circle K, which amounted to $0.4 million for the three months ended March 31, 2018.

On March 15, 2018, as approved by the independent conflicts committee of our Board, we purchased the leasehold interest in two retail sites from Circle K for $0.2 million. We purchase the fuel supplied to these retail sites from Circle K. Such purchases were insignificant for the three months ended March 31, 2018.

Effective February 1, 2018, Couche-Tard implemented a freight cost initiative by renegotiating hauling agreements, including our wholesale transportation agreements. On May 4, 2018, the independent conflicts committee of our Board approved an amendment to the Omnibus Agreement providing for the payment by us to Couche-Tard of a 2.57% commission on our wholesale transportation costs under contracts included in Couche-Tard’s global contract renegotiations and successfully renegotiated. This commission amounted to $0.1 million for the three months ended March 31, 2018. 

Amounts payable to Circle K related to these purchases totaled $6.7 million and $7.0 million at March 31, 2018 and December 31, 2017, respectively.

Amended Omnibus Agreement and Management Fees

We incurred $3.1 million and $4.3 million for the three months ended March 31, 2018 and 2017, 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. The decrease was driven by personnel and salary reductions effective at the time of the Merger. Amounts payable related to Circle K related to expenses incurred by Circle K in accordance with the Amended Omnibus Agreement totaled $19.4 million and $18.3 million at March 31, 2018 and December 31, 2017, respectively.

Common Units Issued to CST and Circle K as Consideration for Amounts Due Under the Amended Omnibus Agreement

As approved by the independent conflicts committee of the Board, the Partnership, CST and Circle K mutually agreed to settle, from time to time, some or all of the amounts due under the terms of the Amended Omnibus Agreement in newly issued common units representing limited partner interests in the Partnership. As approved by the independent conflicts committee, the number of common units issued is based on the volume weighted average daily trading price of the common units for the 20 trading days prior to issuance. 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

Common

Units Issued

 

Quarter ended December 31, 2017

 

March 1, 2018

 

 

136,882

 

Quarter ended March 31, 2018

 

*

 

 

155,236

 

 

*

Expected to be issued on May 21, 2018

IDR and Common Unit Distributions

We distributed $1.2 million and $1.0 million to CST related to its ownership of our IDRs and $4.5 million and $4.1 million related to its ownership of our common units during the three months ended March 31, 2018 and 2017, respectively.

9


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 March 31,

 

 

 

 

2018

 

 

2017

 

 

Revenues from motor fuel sales to DMS

 

$

58,921

 

 

$

54,449

 

 

Rental income from DMS

 

 

4,285

 

 

 

4,975

 

 

 

Accounts receivable from DMS totaled $9.6 million and $9.3 million at March 31, 2018 and December 31, 2017, respectively.

Revenues from rental income from Topstar Enterprises, an entity affiliated with Joseph V. Topper, Jr, a member of the Board, were $0.1 million for the three months ended March 31, 2018 and 2017.

CrossAmerica leases real estate from certain entities affiliated with Joseph V. Topper, Jr., a member of the Board. Rent expense paid to these entities was $0.2 million for the three months ended March 31, 2018 and 2017.

Maintenance and Environmental Costs

Certain maintenance and environmental monitoring and remediation activities are performed by an entity affiliated with Joseph V. Topper, Jr., a member of the Board, as approved by the independent conflicts committee of the Board. We incurred charges with this related party of $0.2 million for the three months ended March 31, 2018 and 2017. Accounts payable to this related party amounted to $0.2 million at March 31, 2018 and December 31, 2017.

Principal Executive Offices

Our principal executive offices are in Allentown, Pennsylvania. We sublease office space from CST that CST leases from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of our Board. The management fee charged by CST to us under the Amended Omnibus Agreement includes this rental expense, which amounted to $0.2 million for the three months ended March 31, 2018 and 2017. 

Public Relations and Website Consulting Services

We have engaged a company affiliated with John B. Reilly, III, a member of the Board, for public relations and website consulting services. The cost of these services was insignificant for the three months ended March 31, 2018 and 2017.

Note 8. 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, 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 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. 

Environmental Matters

We currently own or lease retail sites where refined petroleum products are being or have been handled. These retail sites and the refined petroleum products handled thereon may be subject to federal and state environmental laws and regulations. Under such laws and regulations, we could be required to remove or remediate containerized hazardous liquids or associated generated wastes (including wastes disposed of or abandoned by prior owners or operators), to remediate contaminated property arising from the release of liquids or wastes into the environment, including contaminated groundwater, or to implement best management practices to prevent future contamination.

10


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

We maintain insurance of various types with varying levels of coverage that is considered adequate under the circumstances to cover operations and properties. The insurance policies are subject to deductibles that are considered reasonable and not excessive. In addition, we have entered into indemnification and escrow agreements with various sellers in conjunction with several of their respective acquisitions, as further described below. Financial responsibility for environmental remediation is negotiated in connection with each acquisition transaction. In each case, an assessment is made of potential environmental liability exposure based on available information. Based on that assessment and relevant economic and risk factors, a determination is made whether to, and the extent to which we will assume liability for existing environmental conditions.

Environmental liabilities recorded on the balance sheet within accrued expenses and other current liabilities and other long-term liabilities totaled $3.7 million and $3.5 million at March 31, 2018 and December 31, 2017, respectively. Indemnification assets related to third-party escrow funds, state funds or insurance recorded on the balance sheet within other current assets and other noncurrent assets totaled $3.2 million and $3.4 million at March 31, 2018 and December 31, 2017, respectively. State funds represent probable state reimbursement amounts. Reimbursement will depend upon the continued maintenance and solvency of the state. Insurance coverage represents amounts deemed probable of reimbursement under insurance policies.

The estimates used in these reserves are based on all known facts at the time and an assessment of the ultimate remedial action outcomes. We will adjust loss accruals as further information becomes available or circumstances change. Among the many uncertainties that impact the estimates are the necessary regulatory approvals for, and potential modifications of remediation plans, the amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment and the possibility of existing legal claims giving rise to additional claims.

Environmental liabilities related to the sites contributed to the Partnership in connection with our IPO have not been assigned to us, and are still the responsibility of the Predecessor Entity. 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. As such, these environmental liabilities and indemnification assets are recorded on the balance sheet of the Predecessor Entity rather than the balance sheet of the Partnership.

Note 9. 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 2018 or 2017.

As further discussed in Note 10, 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.

11


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Financial Instruments

The fair value of our accounts receivable, notes receivable, and accounts payable approximated their carrying values as of March 31, 2018 and December 31, 2017 due to the short-term maturity of these instruments. The fair value of the revolving credit facility approximated its carrying values of $511.0 million as of March 31, 2018 and $506.0 million as of December 31, 2017, due to the frequency with which interest rates are reset and the consistency of the market spread.

Note 10. EQUITY-BASED COMPENSATION

Overview

We record equity-based compensation as a component of general and administrative expenses in the statements of operations. Equity-based compensation expense was insignificant and $0.9 million for the three months ended March 31, 2018 and 2017, respectively.

Partnership Equity-Based Awards

Since we grant awards to employees of CST who provide services to us under the Amended Omnibus Agreement, and since the grants may be settled in cash, unvested phantom units and vested and unvested profits interests receive fair value variable accounting treatment. As such, they are measured at fair value at each balance sheet reporting date and the cumulative compensation 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 March 31, 2018 and December 31, 2017 totaled $0.6 million and $0.7 million, respectively.

CST Equity-Based Awards

In February 2017, CST granted approximately 47,000 equity-based awards in the form of time vested restricted stock units of CST to certain employees for services rendered on our behalf. Upon completion of the Merger, these awards converted to cash awards and remained subject to the same vesting terms and payment schedule of three annual tranches as those set forth in the original award agreement; provided that, upon completion of the Merger, such awards will vest in full upon an involuntary termination of employment without cause, or termination for “Good Reason”, or termination due to death, “Disability” or Retirement. The expense associated with these awards that was charged to us under the Amended Omnibus Agreement was $0.1 million for the three months ended March 31, 2018. Unrecognized compensation expense associated with these awards amounted to $0.6 million and $0.7 million as of March 31, 2018 and December 31, 2017, respectively, which will be recognized over the vesting term through January 2020.

For the three months ended March 31, 2017, the expense associated with CST equity-based awards in the form of time vested restricted stock units of CST, stock options of CST and market share units of CST, which was charged to us under the Amended Omnibus Agreement, was $0.7 million.

Note 11. 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 (benefit) of $0.3 million and $(2.7) million for the three months ended March 31, 2018 and 2017, respectively, as a result of the income generated (losses incurred) by our corporate subsidiaries. The effective tax rate differs from the combined federal and state statutory rate primarily because only LGWS is subject to income tax.

12


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 12. NET INCOME 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 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.

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 March 31,

 

 

 

2018

 

 

2017

 

Numerator:

 

 

 

 

 

 

 

 

Distributions paid(a)

 

$

21,415

 

 

$

20,541

 

Allocation of distributions in excess of net (loss) income

 

 

(23,400

)

 

 

(19,837

)

Limited partners’ interest in net (loss) income - basic and diluted

 

$

(1,985

)

 

$

704

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average limited partnership units outstanding - basic

 

 

34,157,088

 

 

 

33,588,163

 

Adjustment for phantom units(b)

 

 

 

 

 

34,498

 

Weighted average limited partnership units outstanding - diluted

 

 

34,157,088

 

 

 

33,622,661

 

Net income (loss) per limited partnership unit - basic and diluted

 

$

(0.06

)

 

$

0.02

 

 

(a)

Distributions paid per unit were $0.6275 and $0.6125 during the three months ended March 31, 2018 and 2017, respectively.

(b)

Excludes 7,971 potentially dilutive securities from the calculation of diluted earnings per common unit because to do so would be antidilutive for the three months ended March 31, 2018.

Distributions

Distribution activity for 2018 was as follows:

 

Quarter Ended

 

Record Date

 

Payment Date

 

Cash

Distribution

(per unit)

 

 

Cash

Distribution

(in thousands)

 

December 31, 2017

 

February 5, 2018

 

February 12, 2018

 

$

0.6275

 

 

$

21,415

 

March 31, 2018

 

May 18, 2018

 

May 25, 2018

 

$

0.5250

 

 

$

17,996

 

 

The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy at any time. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will continue to pay distributions in the future.

Note 13. SEGMENT REPORTING

We conduct our business in two segments: 1) the Wholesale segment and 2) the Retail segment. The wholesale segment includes the wholesale distribution of motor fuel to lessee dealers, independent dealers, commission agents, DMS, CST and company operated retail sites. We have exclusive motor fuel distribution contracts with lessee dealers who lease the property from us. We also have exclusive distribution contracts with independent dealers to distribute motor fuel but do not collect rent from the independent dealers. Similar to lessee dealers, we have motor fuel distribution agreements with DMS and 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 retail sites and the retail sale of motor fuel at retail sites operated by commission agents. A commission agent is a retail site where we retain title to the motor fuel inventory and sell it directly to our end user customers. At commission agent retail sites, we manage motor fuel inventory pricing and retain the gross profit on motor fuel sales, less a commission to the agent who operates the retail site. Similar to our Wholesale segment, we also generate revenues through leasing or subleasing real estate in our Retail segment.

13


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

As part of our evaluation of the economic performance of our retail sites, we will from time to time convert company owned retail sites from our Retail segment to lessee dealers in our Wholesale segment. As a result, we no longer generate revenues from the retail sale of motor fuel or merchandise at these stores subsequent to the date of conversion and we no longer incur retail operating expenses related to these retail sites. However, we continue to supply these retail sites with motor fuel on a wholesale basis pursuant to the fuel supply contract with the lessee dealer. Further, we continue to own/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.

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 motor fuel sales is also eliminated. Total assets by segment are not presented as management does not currently assess performance or allocate resources based on that data.

The following table reflects activity related to our reportable segments (in thousands):

 

 

 

Wholesale

 

 

Retail

 

 

Unallocated

 

 

Consolidated

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from fuel sales to external customers

 

$

382,000

 

 

$

127,317

 

 

$

 

 

$

509,317

 

Intersegment revenues from fuel sales

 

 

98,393

 

 

 

 

 

 

(98,393

)

 

 

 

Revenues from food and merchandise sales

 

 

 

 

 

22,586

 

 

 

 

 

 

22,586

 

Rent income

 

 

19,755

 

 

 

1,966

 

 

 

 

 

 

21,721

 

Other revenue

 

 

946

 

 

 

 

 

 

 

 

 

946

 

Total revenues

 

$

501,094

 

 

$

151,869

 

 

$

(98,393

)

 

$

554,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from CST Fuel Supply equity interests

 

$

3,805

 

 

$

 

 

$

 

 

$

3,805

 

Operating income (loss)

 

$

26,163

 

 

$

1,349

 

 

$

(20,088

)

 

$

7,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from fuel sales to external customers

 

$

339,088

 

 

$

84,203

 

 

$

 

 

$

423,291

 

Intersegment revenues from fuel sales

 

 

61,616

 

 

 

 

 

 

(61,616

)

 

 

 

Revenues from food and merchandise sales

 

 

 

 

 

24,020

 

 

 

 

 

 

24,020

 

Rent income

 

 

19,639

 

 

 

1,802

 

 

 

 

 

 

21,441

 

Other revenue

 

 

534

 

 

 

 

 

 

 

 

 

534

 

Total revenues

 

$

420,877

 

 

$

110,025

 

 

$

(61,616

)

 

$

469,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from CST Fuel Supply equity interests

 

$

3,603

 

 

$

 

 

$

 

 

$

3,603

 

Operating income (loss)

 

$

25,652

 

 

$

145

 

 

$

(20,217

)

 

$

5,580

 

 

Receivables relating to the revenue streams above are as follows:

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Receivables from fuel and merchandise sales

 

$

35,295

 

 

$

35,439

 

Receivables for rent and other lease-related charges

 

 

6,018

 

 

 

6,812

 

Total accounts receivable

 

$

41,313

 

 

$

42,251

 

Performance obligations are satisfied as fuel is delivered to the customer. Many of our contracts with our customers include minimum purchase volumes measured on a monthly basis, although such revenue is not material. Receivables from fuel are recognized on a per-gallon rate and are generally collected within 10 days of delivery.

Receivables from rent and other lease-related charges are generally collected at the beginning of the month.

14


CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 14. SUPPLEMENTAL CASH FLOW INFORMATION

In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in assets and liabilities as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Decrease (increase):

 

 

 

 

 

 

 

 

Accounts receivable

 

$

2,154

 

 

$

7,020

 

Accounts receivable from related parties

 

 

(1,128

)

 

 

491

 

Inventories

 

 

(114