0001564590-18-027611.txt : 20181107 0001564590-18-027611.hdr.sgml : 20181107 20181106184641 ACCESSION NUMBER: 0001564590-18-027611 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 74 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181107 DATE AS OF CHANGE: 20181106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CrossAmerica Partners LP CENTRAL INDEX KEY: 0001538849 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 454165414 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35711 FILM NUMBER: 181164327 BUSINESS ADDRESS: STREET 1: 600 HAMILTON STREET STREET 2: SUITE 500 CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 610-625-8000 MAIL ADDRESS: STREET 1: 600 HAMILTON STREET STREET 2: SUITE 500 CITY: ALLENTOWN STATE: PA ZIP: 18101 FORMER COMPANY: FORMER CONFORMED NAME: Lehigh Gas Partners LP DATE OF NAME CHANGE: 20120105 10-Q 1 capl-10q_20180930.htm 10-Q capl-10q_20180930.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 September 30, 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     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 November 1, 2018, the registrant had outstanding 34,444,113 common units.


TABLE OF CONTENTS

 

 

 

PAGE

 

 

 

Commonly Used Defined Terms

 

i

PART I - FINANCIAL INFORMATION

 

1

Item 1. Financial Statements

 

1

Condensed Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017

 

1

Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017

 

2

Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2018 and 2017

 

3

Condensed Consolidated Statements of Equity (unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017

 

4

Notes to Condensed Consolidated Financial Statements

 

5

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

 

20

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

38

Item 4. Controls and Procedures

 

38

PART II - OTHER INFORMATION

 

39

Item 1. Legal Proceedings

 

39

Item 1A. Risk Factors

 

39

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

 

39

Item 6. Exhibits

 

39

SIGNATURE

 

40

 

 

 


 

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

 

 

 

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

 

 

 

CST Fuel Supply

 

CST Fuel Supply LP is the parent of CST Marketing and Supply, indirectly owned by Circle K. As of September 30, 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

 

 

 

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

 

 

 

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


 

 

 

 

ASU

 

Accounting Standards Update

 

 

 

Board

 

Board of Directors of our General Partner

 

 

 

BP

 

BP p.l.c.

 

 

 

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 DMI 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., a Delaware corporation and an indirect, wholly owned subsidiary of Circle K (“Merger Sub”), 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 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

 

 

 

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 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

 

 

 

ii


 

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

 

 

 

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, except unit data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

3,791

 

 

$

3,897

 

Accounts receivable, net of allowances of $275 and $277, respectively

 

 

26,488

 

 

 

27,792

 

Accounts receivable from related parties

 

 

14,496

 

 

 

14,459

 

Inventories

 

 

15,362

 

 

 

15,122

 

Assets held for sale

 

 

572

 

 

 

11,708

 

Other current assets

 

 

6,687

 

 

 

7,528

 

Total current assets

 

 

67,396

 

 

 

80,506

 

Property and equipment, net

 

 

658,514

 

 

 

681,000

 

Intangible assets, net

 

 

63,418

 

 

 

76,063

 

Goodwill

 

 

88,764

 

 

 

89,109

 

Other assets

 

 

20,391

 

 

 

20,558

 

Total assets

 

$

898,483

 

 

$

947,236

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt and capital lease obligations

 

$

2,254

 

 

$

2,916

 

Accounts payable

 

 

38,947

 

 

 

35,789

 

Accounts payable to related parties

 

 

26,967

 

 

 

25,512

 

Accrued expenses and other current liabilities

 

 

15,479

 

 

 

17,015

 

Motor fuel taxes payable

 

 

11,097

 

 

 

12,241

 

Total current liabilities

 

 

94,744

 

 

 

93,473

 

Debt and capital lease obligations, less current portion

 

 

538,075

 

 

 

529,147

 

Deferred tax liabilities, net

 

 

20,945

 

 

 

24,069

 

Asset retirement obligations

 

 

32,433

 

 

 

31,467

 

Other long-term liabilities

 

 

95,374

 

 

 

98,061

 

Total liabilities

 

 

781,571

 

 

 

776,217

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Partners’ Capital

 

 

 

 

 

 

 

 

Common units—(34,444,113 and 34,111,461 units issued and

   outstanding at September 30, 2018 and December 31, 2017,

   respectively)

 

 

116,912

 

 

 

171,337

 

General Partner’s interest

 

 

 

 

 

 

Total Partners’ Capital

 

 

116,912

 

 

 

171,337

 

Noncontrolling interests

 

 

 

 

 

(318

)

Total equity

 

 

116,912

 

 

 

171,019

 

Total liabilities and equity

 

$

898,483

 

 

$

947,236

 

 

See Notes to Condensed Consolidated Financial Statements.

1


CROSSAMERICA PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Operating revenues(a)

 

$

670,810

 

 

$

544,092

 

 

$

1,898,675

 

 

$

1,542,167

 

Costs of sales(b)

 

 

627,012

 

 

 

502,517

 

 

 

1,770,954

 

 

 

1,421,524

 

Gross profit

 

 

43,798

 

 

 

41,575

 

 

 

127,721

 

 

 

120,643

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from CST Fuel Supply equity interests

 

 

3,479

 

 

 

3,752

 

 

 

11,024

 

 

 

11,185

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

15,261

 

 

 

15,371

 

 

 

47,294

 

 

 

46,853

 

General and administrative expenses

 

 

4,310

 

 

 

5,994

 

 

 

13,840

 

 

 

23,731

 

Depreciation, amortization and accretion expense

 

 

13,993

 

 

 

14,049

 

 

 

51,425

 

 

 

42,675

 

Total operating expenses

 

 

33,564

 

 

 

35,414

 

 

 

112,559

 

 

 

113,259

 

(Loss) gain on dispositions and lease terminations, net

 

 

(61

)

 

 

2,371

 

 

 

(6,678

)

 

 

2,013

 

Operating income

 

 

13,652

 

 

 

12,284

 

 

 

19,508

 

 

 

20,582

 

Other income (expense), net

 

 

104

 

 

 

121

 

 

 

287

 

 

 

366

 

Interest expense

 

 

(8,145

)

 

 

(7,102

)

 

 

(24,354

)

 

 

(20,599

)

Income (loss) before income taxes

 

 

5,611

 

 

 

5,303

 

 

 

(4,559

)

 

 

349

 

Income tax expense (benefit)

 

 

303

 

 

 

966

 

 

 

(2,122

)

 

 

(1,686

)

Net income (loss)

 

 

5,308

 

 

 

4,337

 

 

 

(2,437

)

 

 

2,035

 

Less: net income (loss) attributable to noncontrolling interests

 

 

 

 

 

4

 

 

 

(5

)

 

 

(1

)

Net income (loss) attributable to limited partners

 

 

5,308

 

 

 

4,333

 

 

 

(2,432

)

 

 

2,036

 

IDR distributions

 

 

(133

)

 

 

(1,115

)

 

 

(1,446

)

 

 

(3,162

)

Net income (loss) available to limited partners

 

$

5,175

 

 

$

3,218

 

 

$

(3,878

)

 

$

(1,126

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per limited partner unit

 

$

0.15

 

 

$

0.09

 

 

$

(0.11

)

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average limited partner units:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic common units

 

 

34,439,416

 

 

 

33,931,056

 

 

 

34,311,998

 

 

 

33,773,964

 

Diluted common units(c)

 

 

34,439,416

 

 

 

33,937,702

 

 

 

34,311,998

 

 

 

33,792,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Includes excise taxes of:

 

$

25,176

 

 

$

19,704

 

 

$

74,984

 

 

$

58,351

 

(a) Includes revenues from fuel sales to and rental

      income from related parties of:

 

 

122,383

 

 

 

110,337

 

 

 

350,454

 

 

 

309,313

 

(a) Includes rental income of:

 

 

21,149

 

 

 

21,644

 

 

 

64,331

 

 

 

65,090

 

(b) Includes rental expense of:

 

 

4,980

 

 

 

4,876

 

 

 

14,775

 

 

 

14,593

 

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

      months ended September 30, 2018 and the nine months ended September 30, 2017 because to do so would have

      been antidilutive.

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

2


CROSSAMERICA PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,437

)

 

$

2,035

 

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

   operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion expense

 

 

51,425

 

 

 

42,675

 

Amortization of deferred financing costs

 

 

1,227

 

 

 

1,278

 

Amortization of (above) below market leases, net

 

 

(18

)

 

 

57

 

Provision for losses on doubtful accounts

 

 

278

 

 

 

46

 

Deferred income taxes

 

 

(3,124

)

 

 

(2,971

)

Equity-based employee and director compensation expense

 

 

340

 

 

 

1,889

 

Amended Omnibus Agreement fees settled in common units

 

 

3,300

 

 

 

9,900

 

Loss (gain) on dispositions and lease terminations, net

 

 

6,678

 

 

 

(2,013

)

Changes in operating assets and liabilities, net of acquisitions

 

 

(399

)

 

 

13,542

 

Net cash provided by operating activities

 

 

57,270

 

 

 

66,438

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Principal payments received on notes receivable

 

 

718

 

 

 

345

 

Proceeds from sale of property and equipment

 

 

5,043

 

 

 

23,900

 

Capital expenditures

 

 

(10,217

)

 

 

(10,175

)

Cash paid in connection with acquisitions, net of cash acquired

 

 

 

 

 

(2,779

)

Cash paid to Circle K in connection with acquisitions

 

 

(485

)

 

 

 

Net cash (used in) provided by investing activities

 

 

(4,941

)

 

 

11,291

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under the revolving credit facility

 

 

106,720

 

 

 

88,840

 

Repayments on the revolving credit facility

 

 

(96,220

)

 

 

(98,856

)

Payments of long-term debt and capital lease obligations

 

 

(2,319

)

 

 

(1,509

)

Payments of sale leaseback obligations

 

 

(750

)

 

 

(635

)

Payment of deferred financing fees

 

 

(901

)

 

 

(6

)

Contributions from parent company

 

 

 

 

 

329

 

Distributions paid on distribution equivalent rights

 

 

(22

)

 

 

(15

)

Distributions paid to holders of the IDRs

 

 

(1,446

)

 

 

(3,162

)

Distributions paid to noncontrolling interests

 

 

(18

)

 

 

(60

)

Distributions paid on common units

 

 

(57,479

)

 

 

(62,439

)

Net cash used in financing activities

 

 

(52,435

)

 

 

(77,513

)

Net (decrease) increase in cash

 

 

(106

)

 

 

216

 

Cash at beginning of period

 

 

3,897

 

 

 

1,350

 

Cash at end of period

 

$

3,791

 

 

$

1,566

 

 

See Notes to Condensed Consolidated Financial Statements.

 


3


CROSSAMERICA PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Thousands of Dollars, Except Unit Amounts)

(Unaudited)

 

 

 

Limited Partners’ Interest

 

 

General

 

 

Incentive

 

 

 

 

 

 

 

 

 

 

 

Common

Unitholders

 

 

Partner’s

Interest

 

 

Distribution

Rights

 

 

Noncontrolling

Interest

 

 

Equity

 

 

 

Units

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

Balance at June 30, 2018

 

 

34,433,574

 

 

$

129,971

 

 

$

 

 

$

 

 

$

(341

)

 

$

129,630

 

Vesting of incentive and director awards, net of units

   withheld for taxes

 

 

10,539

 

 

 

(150

)

 

 

 

 

 

 

 

 

341

 

 

 

191

 

Net income and comprehensive income

 

 

 

 

 

5,175

 

 

 

 

 

 

133

 

 

 

 

 

 

5,308

 

Distributions paid

 

 

 

 

 

(18,084

)

 

 

 

 

 

(133

)

 

 

 

 

 

(18,217

)

Balance at September 30, 2018

 

 

34,444,113

 

 

$

116,912

 

 

$

 

 

$

 

 

$

 

 

$

116,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2017

 

 

33,860,967

 

 

$

183,941

 

 

$

 

 

$

 

 

$

(280

)

 

$

183,661

 

Issuance of units to Circle K for the payment of fees

   under the Amended Omnibus Agreement

 

 

124,003

 

 

 

3,162

 

 

 

 

 

 

 

 

 

 

 

 

3,162

 

Contribution from Circle K as reimbursement of

   income tax liability incurred on FTC divestiture

 

 

 

 

 

329

 

 

 

 

 

 

 

 

 

 

 

 

329

 

Net income and comprehensive income

 

 

 

 

 

3,218

 

 

 

 

 

 

1,115

 

 

 

4

 

 

 

4,337

 

Distributions paid

 

 

 

 

 

(21,081

)

 

 

 

 

 

(1,115

)

 

 

(18

)

 

 

(22,214

)

Balance at September 30, 2017

 

 

33,984,970

 

 

$

169,569

 

 

$

 

 

$

 

 

$

(294

)

 

$

169,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

34,111,461

 

 

$

171,337

 

 

$

 

 

$

 

 

$

(318

)

 

$

171,019

 

Vesting of incentive and director awards, net of units

   withheld for taxes

 

 

40,534

 

 

 

492

 

 

 

 

 

 

 

 

 

341

 

 

 

833

 

Issuance of units to Circle K for the payment of fees

   under the Amended Omnibus Agreement

 

 

292,118

 

 

 

6,518

 

 

 

 

 

 

 

 

 

 

 

 

6,518

 

Acquisition of leasehold interest in three sites from

   Circle K

 

 

 

 

 

(56

)

 

 

 

 

 

 

 

 

 

 

 

(56

)

Net (loss) income and comprehensive (loss) income

 

 

 

 

 

(3,878

)

 

 

 

 

 

1,446

 

 

 

(5

)

 

 

(2,437

)

Distributions paid

 

 

 

 

 

(57,501

)

 

 

 

 

 

(1,446

)

 

 

(18

)

 

 

(58,965

)

Balance at September 30, 2018

 

 

34,444,113

 

 

$

116,912

 

 

$

 

 

$

 

 

$

 

 

$

116,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

 

33,524,952

 

 

$

221,044

 

 

$

 

 

$

 

 

$

(233

)

 

$

220,811

 

Vesting of incentive and director awards, net of units

   withheld for taxes

 

 

35,993

 

 

 

896

 

 

 

 

 

 

 

 

 

 

 

 

896

 

Issuance of units to Circle K for the payment of fees

   under the Amended Omnibus Agreement

 

 

424,025

 

 

 

10,880

 

 

 

 

 

 

 

 

 

 

 

 

10,880

 

Contribution from Circle K as reimbursement of

   income tax liability incurred on FTC divestiture

 

 

 

 

 

329

 

 

 

 

 

 

 

 

 

 

 

 

329

 

Net (loss) income and comprehensive (loss) income

 

 

 

 

 

(1,126

)

 

 

 

 

 

3,162

 

 

 

(1

)

 

 

2,035

 

Distributions paid

 

 

 

 

 

(62,454

)

 

 

 

 

 

(3,162

)

 

 

(60

)

 

 

(65,676

)

Balance at September 30, 2017

 

 

33,984,970

 

 

$

169,569

 

 

$

 

 

$

 

 

$

(294

)

 

$

169,275

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

4


CROSSAMERICA PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES

Circle K 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 21.7% 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 qualified 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 September 30, 2018 and for the three and nine months ended September 30, 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 and nine months ended September 30, 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.

5


CROSSAMERICA PARTNERS LP

NOTES TO CONDENSED 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. Certain 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.

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.

6


CROSSAMERICA PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 have performed certain system upgrades and further validated the completeness and accuracy of our lease data. We intend to apply each of the practical expedients in adopting this new guidance. Since our previous sale-leaseback transactions were accounted for as failed sale-leasebacks, we are required to reassess these leases under the new guidance as part of adopting ASU 2016-02. Although our analysis is not complete, we believe these leases will be accounted for as operating leases under the new guidance and the assets and sale-leaseback financing obligations currently recorded on the balance sheet will be removed with a transition adjustment to equity upon adoption.

Concentration Risk

For the nine months ended September 30, 2018, we distributed 12% of our total wholesale distribution volumes to DMS and DMS accounted for 17% of our rental income. For the nine months ended September 30, 2017, we distributed 14% of our total wholesale distribution volumes to DMS and DMS accounted for 23% of our rental income.  

In June 2018, we executed master fuel supply and master lease agreements with a third party multi-site operator of retail motor fuel stations, to which we transitioned 43 sites in Florida from DMS in the third quarter of 2018. The master fuel supply and master lease agreements have an initial 10-year term with four 5-year renewal options. See Note 7 for information relating to our recapture of these sites from the master lease agreement with DMS.

For the nine months ended September 30, 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 20% of our rental income from Circle K. For the nine months ended September 30, 2017, we distributed 8% of our total wholesale distribution volume to Circle K retail sites that are not supplied by CST Fuel Supply and received 22% of our rental income from Circle K.

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

For the nine months ended September 30, 2018, our wholesale business purchased approximately 26%, 26%, 12% and 10% of its motor fuel from ExxonMobil, BP, Motiva and Circle K, respectively. For the nine months ended September 30, 2017, our wholesale business purchased approximately 28%, 27% and 17% 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 nine months ended September 30, 2018 and 2017.

Valero supplied substantially all of the motor fuel purchased by CST Fuel Supply during all periods presented. 

Note 2. ASSETS HELD FOR SALE

We classified one site and 12 sites as held for sale at September 30, 2018 and December 31, 2017, respectively. Of the sites held for sale at December 31, 2017, 11 were required to be divested per FTC orders in connection with Circle K’s acquisition of Holiday Stationstores, Inc. (“Holiday”) and the joint acquisition of Jet-Pep Assets by Circle K and us. These assets were sold in the third quarter of 2018 for total proceeds of $4.9 million. Assets held for sale were as follows (in thousands): 

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Land

 

$

525

 

 

$

4,946

 

Buildings and site improvements

 

 

136

 

 

 

5,785

 

Equipment

 

 

158

 

 

 

2,485

 

Total

 

 

819

 

 

 

13,216

 

Less accumulated depreciation

 

 

(247

)

 

 

(1,508

)

Assets held for sale

 

$

572

 

 

$

11,708

 

 

We recorded impairment charges totaling $8.9 million during the nine months ended September 30, 2018 related to the 11 FTC-required divestitures, included within depreciation, amortization and accretion expense on the statement of operations. The impairment charges include $1.2 million of wholesale fuel distribution rights and $0.3 million of goodwill, most of which relates to the Retail segment. No significant impairments were recorded during the three months ended September 30, 2018 or during the three and nine months ended September 30, 2017.

7


CROSSAMERICA PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

As part of Circle K’s acquisition of Holiday, the FTC issued a decree in which nine sites were required to be divested to FTC approved third-party buyers (“Upper Midwest Sites”). Since this was a forced divestiture of assets for us, Circle K has agreed to compensate us with an amount representing the difference between the value of the nine Upper Midwest Sites and the proceeds of the sale to FTC approved third-party buyers, which amounted to $6.3 million. We anticipate Circle K’s payment to us will be made during the fourth quarter of 2018. This payment will be accounted for as a transaction between entities under common control and thus recorded as a contribution to partners’ capital and will be subject to income taxes. 

These sites were divested in September 2018, after the June 15, 2018 deadline specified in the FTC orders. As a result, Couche-Tard and/or the Partnership may be subject to civil penalties, up to a maximum allowed by law of $41,000 per day per violation of the FTC divestiture orders. Circle K has agreed that it would be solely responsible for any such penalties and we have not accrued any liability for such penalties.

During the three and nine months ended September 30, 2017, as approved by the conflicts committee of our Board, we sold 28 properties to DMR for $16.6 million, resulting in a $0.5 million loss. Three additional properties and approximately $3.0 million of proceeds remained in escrow as of September 30, 2017 until certain conditions were met during the fourth quarter of 2017. These sites were generally sites at which we did not supply fuel or represented vacant land.

During the three and nine months ended September 30, 2017, we sold two properties as a result of the FTC’s requirements associated with the Merger for $6.7 million, resulting in a gain of $2.2 million. In addition, Circle K agreed to reimburse us for the tax liability incurred on the required sale, resulting in additional proceeds of $0.3 million, which was accounted for as a contribution to partners’ capital.

During the three and nine months ended September 30, 2017, DMS renewed its contract with one of its customers, triggering a $0.8 million earn-out payment by DMS to us under a contract entered into with DMS at the time of CST acquiring our General Partner in October 2014, which was recorded as a gain.

Note 3. INVENTORIES

Inventories consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Retail site merchandise

 

$

7,061

 

 

$

7,806

 

Motor fuel

 

 

8,301

 

 

 

7,316

 

Inventories

 

$

15,362

 

 

$

15,122

 

 

Note 4. PROPERTY AND EQUIPMENT

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Land

 

$

284,945

 

 

$

285,682

 

Buildings and site improvements

 

 

363,160

 

 

 

362,207

 

Leasehold improvements

 

 

11,165

 

 

 

10,155

 

Equipment

 

 

188,658

 

 

 

185,733

 

Construction in progress

 

 

5,002

 

 

 

1,797

 

Property and equipment, at cost